Landlord and Tenant - Tenancy Deposits

Gaining possession where landlord has not protected deposit in tenancy deposit scheme.

Failure to protect the tenant's money deposit in an authorised Tenancy Deposit Scheme (TDS) on commencement of the tenancy and provide prescribed information about it as required by the Housing Act 2004 can prevent the landlord from gaining possession by serving a section 21 notice under the Housing Act 1988.

Since 6 April 2007, it has been mandatory for a landlord to join a TDS on creation of a new Assured Short Term Tenancy (AST), where a deposit is paid by the tenant to the landlord on commencement of the tenancy.

The landlord's obligation is to place the deposit in an authorised TDS and comply with the ''initial requirements'' imposed by the authorised TDS within 30 days from the date of receipt of the deposit (section 213(3), HA 2004 as amended by section 184 of the Localism Act 2011 (LA 2011)).

The 30 day period only applies where the deposit has been received by the landlord on or after 6 April 2012 and was only 14 days before. The landlord cannot serve a valid section 21 notice where the deposit is not held in an authorised TDS or where the initial requirements have not been complied with. The landlord cannot put things right retrosopectively. See Superstrike Ltd v Rodrigues [2013] EWCA Civ 669.

Failure to provide prescribed information
The landlord cannot serve a section 21 notice where the prescribed information has not been given with the same 30 days.

What about selling?
Where the deposit is not protected a new landlord will not be able to serve a section 21 notice either.

What’s the penalty?
As well as being stuck with the tenant the landlord may be liable to a financial penalty of between one and three times the amount of the deposit, if the tenant makes an application to court.

What can a landlord do?

1. Serve a section 8 notice
   A landlord can still rely on one of the grounds for possession set out in Schedule 2 to the HA 1988 such as nuisance, breach of tenancy and rent arrears. However, landlords often prefer to serve a section 21 notice rather than a section 8 notice where the fixed term has ended, since it is not necessary to prove that the tenant is in default, it’s cheaper and usually avoids going to a court hearing.
   
   
2. Return of deposit to tenant
   The HA 2004 allows the landlord to serve a section 21 notice once action has been taken to rectify the situation:
   • By repayment of the deposit (whether in full or with agreed deductions).
   • Following determination, settlement or withdrawal of any claim under section 214(1) of the HA 2004 (section 215(2A), HA 2004, as inserted by section 184(13) of LA 2011).
   • Protecting the deposit in a TDS after the deadline has passed will not allow the landlord to serve a section 21 notice.
   • Repaying the deposit does not escape liability for the financial penalty for failing to comply with the obligations.
   
   
3. Issuing proceedings under standard possession procedure
   
   The landlord will not be able to use the accelerated possession procedure where the deposit is not held in an authorised TDS or where the landlord has not complied with the initial requirements, even if it has returned the deposit to the tenant. This is because the claim form for the accelerated possession procedure asks the landlord to confirm that the initial requirements regarding the deposit were carried out. Evidence that the landlord has protected the deposit with a TDS must also be attached to the claim form.
   
   Where the landlord cannot do this, it must use the standard possession procedure instead of the accelerated possession procedure – greater cost, uncertainty and an attendance at court.

Provision of prescribed information
If the landlord has not provided the prescribed information to the tenant, the landlord cannot serve a section 21 notice to recover possession of the property "until such time" as the prescribed information has been provided (section 215(2), HA 2004).

In other words, the landlord must provide the necessary information and then it can serve a section 21 notice.

Where the landlord never registered the deposit in a TDS, there will never have been the option to have provided the prescribed information to the tenant, setting out details of the registration. To serve a section 21 notice in those circumstances, the landlord must repay the deposit to the tenant.

Even if the landlord provides the prescribed information to the tenant, the landlord could still be liable for the financial penalty for not complying with its obligations.