Should I sell or risk tenants buying at undervalue price?9:08 AM, 25th September 2019
About 4 weeks ago 48
During our recent webinar on the eviction of private tenants, we received a number of questions relating to tenant deposits.
In this article, our guest presenter Yezdan Izzet from Bolt Burdon answers all the deposit-related questions that were raised.
If a deposit has not been registered is it worth registering it prior to the hearing or should you return the deposit?
Any deposit taken in connection with an Assured Shorthold Tenancy (‘AST’) since 6 April 2007 must be registered with an authorised tenancy deposit scheme, and the tenant must be provided with prescribed information within 30 days of receipt of deposit (sections 213(3) and 213(6) of the Housing Act 2004). The sanctions against the landlord for non-compliance are:
1. The landlord will be prevented from serving a section 21 notice to recover possession of the property; and
2. The landlord may be liable to pay a fine to the tenant in the amount of once, twice or three times the deposit amount.
The landlord would need to return the deposit to the tenant before serving a section 21 notice otherwise that notice will be invalid. It is too late to return the deposit after the notice has already been served. The landlord would need to return the deposit to the tenant and serve a new section 21 notice.
It is worth mentioning that failure to comply with the initial requirements relating to deposit protection will not prevent a landlord from serving a section 8 notice on the tenant where there has been a breach of the terms of the tenancy.
It is now also the position that even if the deposit was taken before 6 April 2007 and the fixed term of the tenancy came to an end before 6 April 2007 giving rise to a statutory periodic tenancy, the landlord will need to register the deposit before serving a section 21 notice although in that instance there would be no financial penalty against the landlord.
What is the position if the former landlord protects the AST deposit late (after the 14 days) and the property is now transferred to an agent? Will the agent have to pay the penalty?
Since April 2012 the period by which the landlord is required to register the deposit was extended from 14 days to 30 days from receipt of the deposit.
If the ‘agent’ is simply acting as a managing agent for the property, the agent will not normally be liable to pay the penalty to the tenant. It is the landlord’s responsibility to deal with registration of the deposit and comply with the initial requirements relating to a deposit protection under the Housing Act 2004.
However, the landlord may have a separate claim against its agent if it was agreed that the agent would deal with registration of the deposit on behalf of the landlord.
If the scenario is that the landlord has sold its interest in the property to a new owner having not complied with the initial deposit requirements, it is advisable to return the deposit to the tenant before completing the transfer of the property. Unfortunately, it is not clear under section 214(1) of the Housing Act 2004 whether the former landlord or new landlord would be liable to pay any fine to the tenant.
A proposed purchaser of the landlord’s interest in the property should be advised to seek an indemnity from the former landlord to recover any liability for non-compliance of the deposit protection requirements in the event of a claim being made by the tenant.
Can you offer to waive rent in lieu of returning deposit to make your S21 notice valid?
The Housing Act 2004 does not define what is meant by the deposit being “returned” to the tenant for the purposes of section 215(2A) of the Housing Act 2004 (as inserted by section 184(13) of the Localism Act 2011).
The case of Chalmiston Properties Limited v Boudia (unreported) 27 October 2015 (Barnet County Court) held that a section 21 notice was invalid where it was served after the landlord has instructed the relevant tenancy deposit scheme to release the deposit to the tenant, but the notice was served before this was credited to the tenant’s account.
The case shows that the definition of ‘repayment’ is unclear and that to be safe the money must be physically back with the tenant before the landlord can serve a section 21 notice.
I would recommend that the safest option is to return the deposit.
What is the position with regards to 2 months rent in advance, as opposed to a deposit?
Whether or not funds paid to a landlord are ‘advance rent’ or a ‘tenancy deposit’ will depend on the facts of each case and the terms of the tenancy agreement. If it is agreed that the payment is made in advance for a 2 month period and the tenant is not required to pay any other sums to the landlord for that period then it is likely that the payment will be an advance rent and not a deposit.
If the payment has any conditions attached to it then it may be deemed to be a deposit.
If the tenant does not have registration details of the deposit, is the S21 notice valid?
If it is the case that the deposit was registered with a tenancy deposit scheme on time (within 30 days of receipt) but the tenant has not been made aware of this, the landlord must provide the tenant with the prescribed information before a valid section 21 notice is served.
Can you confirm why you can no longer protect a deposit late? I thought the options were to return it in full or protect it late (and risk, either way, the potential compensation penalties)
Section 215(2A) of the Housing Act 2004 (which was inserted pursuant to section 184(13) of the Localism Act 2011) requires the deposit to be returned. There is no provision in the Act allowing ‘late’ registration of a deposit.
Once the deposit has been returned the landlord can serve a section 21 notice. However, the return of the deposit does not prevent the tenant from issuing a claim against the landlord for payment of a fine as a result of the initial non-compliance.
What can you do if tenants refuse to take the deposit back?
You should return the deposit by cheque to the named tenant by registered post or hand delivery. I suggest that you keep a copy of the letter for your records.
Once the deposit has been returned you need to allow the tenant an opportunity to cash the cheque before serving a section 21 notice. The guidance on returning the deposit to the tenant comes from the county court case of Ahmed v Shah 2015 which, whilst not binding on other courts as it is a county court decision, gives us a good indication of how to deal with returning the deposit in practice.
It is clear that the deposit must be returned before the service of the section 21 notice. If the cheque is cashed then there can be no dispute over whether it has been returned. However, the legislation does not specify what happens when a tenant does not accept the cheque.
Case law suggests that you would need to show that you had attempted to return it and that you had waited for a reasonable amount of time for it to be cashed before serving the notice. You would then have to ask the Court to consider the section 21 notice as valid. This would be at the Court’s discretion but given that the purpose of the legislation is to protect the deposit and not to obstruct a landlord then one hopes that the Court would take a reasonable view on this.
If we are a few days late registering the deposit at the beginning of the tenancy, are we still unable to serve a S21 notice?
Yes, you cannot serve a valid section 21 notice. The requirements are that the landlord must register the deposit within 30 days of receipt of the deposit. Failure to comply would mean that the deposit will need to be returned to the tenant before the landlord can serve a valid section 21 notice.
If there is a delay in adding a new tenant to the deposit certificate, with a change of sharer, should you just return the deposit or is it worth risking going to court for possession?
The tenancy deposit requirements provide that the deposit is to be registered within 30 days of receipt. I would suggest that each time there is a change of tenant that the deposit be returned and a fresh deposit be obtained and registered so that it is clear as to which tenancy the deposit relates to.
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