The Devil is in the Detail

by Mary Latham

7 years ago

The Devil is in the Detail

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The Devil is in the Detail

The Localism Act 2011 is another heavy piece of legislation and you might be forgiven for missing a very important detail. It has been overlooked in several articles that I have read this week, but the courts will not forgive you so you’d better read on.

In the Housing Act 2004 it became unlawful to take a deposit from a tenant and not “protect” it through one of the 3 schemes that have Government contracts. The Housing Act 2004 included Tenants Deposit Protection (TDP) because it was perceived that landlords were not treating tenants fairly when it came to stoppages at the end of the tenancy and therefore the tenant needed to be given the opportunity to have independent arbitration in the case of a dispute. The arbitration must be paid for and the landlord was given two options.

    1. Put the deposit into a custodial scheme where it is held, at no cost to the landlord or the tenant, until it is returned the end of the tenancy. The interest made on the monies lodged pays for arbitration

OR

  1. Pay an insurance premium of £30 and hold the deposit yourself. The insurer will pay for the arbitration

I won’t go into the details of Tenancy Deposit Protection (TDP) but you can find them all here.

This had not been updated at the time of writing and the following statement at the top of that page is incorrect.

“There are currently no known outstanding effects for the Housing Act 2004, Section 212.”

The 2011 Localism Act, including changes made to this section of the Housing Act, can be found here.

These are the important changes made to the TDP legislation in this Act

  1. We now have 30 days in which to protect the deposit from the date on which it is paid to us by the tenant – this is increased from 14 days
  2. The legal penalties for not protecting a tenant’s deposit are now on a sliding scale, the minimum of which is the return of the full deposit (regardless of what a Tenant may owe you) up to a total of four times that amount. The court has the discretion to decide.
  3. The tenant, and any other person who has provided the deposit, must be given the prescribed information and copy of the Deposit Protection Certificate within 30 days of paying the deposit – up from 14 days
  4. If the deposit has not been protected within the first 30 days subsequent protection will not be legally compliant and a tenant may still take an action in the County Court, even after the tenancy has ended. The penalty may depend upon how long after the 30 days the deposit was protected.

The devil that is hidden in the detail is this

If you do not protect a tenant’s deposit within 30 days of taking it you will not be able to use Section 21 of the Housing Act 1988 to regain possession of your property at any time during the tenancy.

So say you want to remove a tenant from your property because you want to sell it (or for many other reasons) but the tenant is meeting all the terms of the tenancy and does not want to leave.

You did not protected the deposit within 30 days of taking it, so therefore-

You are stuffed

I have a couple of other warnings for you but I will let you digest that first.

*** Updated 7th December 2011 ***

This is the Link to the Localism Act Section 184 which relates to tenancy deposit protection

http://www.legislation.gov.uk/ukpga/2011/20/section/184/enacted

The details that I refer to are in

Sections 10, 11, 12, 13 and 2A

Given this situation what are the landlords option?

1. Do not take a deposit 

2. If you have missed the 30 day deadline you could give 100% of the deposit back to the tenant during the tenancy and this will enable you to serve a Section 21 notice if the tenant does not want to leave

3. You could try negociating with the tenant about any rent arrears, losses or damages and agree the amount to be stopped from their deposit and return the balance to them - during the tenancy - and then serve a Section 21 to remove them

4. You could try regaining possession using a Section 8 - with grounds - and hope that the court is not interested in the fact that you have not protected the tenants deposit within 30 days if this is used as part of a defence

YOU MIGHT TRY THIS 
Take a deposit and protect it under one of the three schemes within 30 days & give the prescribed information to the tenant within 30 days
 The date that these changes will take effect has not yet been announced but it looks likely to be April 2012


Comments

Mark Reynolds

7 years ago

As always Mary you provide some excellent information and guidance but sadly you are a little too late for us. I knew about this a couple of weeks ago when I had a phone discussion with a very nice lady...oh wait a minute that was you! 🙂

On a serious note, keeping up with the legislation and the impact it has on you is vital in this industry and I think that many of us landlords and letting agents (I wear both hats) are grateful for your contributions!

Mary Latham

7 years ago

Thank you Mark. I am VERY VERY concerned about this one. There are many landlords who think that they can protect the deposit at the last minute following a court case earlier this year. This change in legislation will not allow that to happen and if the deposit is not protected in the first 30 days many of these landlords will struggle to regain possession.

I question whether a court will even allow a Section 8 because the landlord who does not protect the deposit is operating illegally and I cannot see a court aiding and abetting an illegal business. That would mean that a tenant could live rent free forever.
I feel like I want to stand on a mountain and shout this to landlords because in a few weeks it will be too late for many of them.

Mark Reynolds

7 years ago

I really should get on with some work! But given that this is a very important issue I think we need to drive it home whenever we can. Mary, you know my background and as you have so rightly said, the courts will not endorse unethical/illegal practices because apart from anything else it will send a message out to landlords that they can do what they like with tenants deposits.

Personally, I would not be able to sleep at night if I had purposely not registered the deposit putting the landlords, or my property at risk of non paying tenants as you identified above.

7 years ago

I personally cannot see any 'Devil' whatsoever in the new legislation.

At the end of the day 30 days is an ample of time for anybody to protect a deposit. Even 14 days should not keep anybody to do it at last minute. Any ‘money desperado’ when comes to higher deposits can go for an insurance premium.
After all we are all one or the other way bounded by many rules and restrictions in our daily lives for which we then have to pay a price if not followed. Late mortgage payments, going over the limit of our overdrafts and so on, I guess no need to go further with more examples.
So, let’s be fair to ourselves and the tenants who very often in the past and indeed even these days were treated badly by their landlords or agents.

I am an agent by the way.

Mark Reynolds

7 years ago

We very often see the landlords that think they can manage their property(s) effectively but simply cannot. In an effort to get the tenant they want they will sometimes offer the tenant the ability to pay the deposit in 2 staged payments over 2 months. So where does that leave the landlord at the moment if they are not able to register the deposit within 14 days because the tenant can;t afford it? Its simply not good enough to say "it was their choice so they have no claim in the future". As an agent we have to advise the landlord of their obligations and if they choose not to listen then that is their choice.

We could, and have, refused landlords who we think are playing the system because, apart from anything else, we will not allow ourselves to be put in a position where we are likely to get prosecuted.

Simple and honest mistakes are acceptable, but showing they are honestly held beliefs is a different matter - Balance of probability rules 🙂

Mary Latham

7 years ago

You are right of course Artur but there are landlords who have not protected their tenants deposits and in the past the courts have allowed them to get away with protection just prior to the case being heard. This will no longer be the case and many people have overlooked this "detail" in the Localism Act.

Mary Latham

7 years ago

You make an interesting point Mark and in my opinion the landlord who takes two stage payments over longer than 30 days would need to take two deposit protections or pay the monies into the custodial scheme as soon as they receive it.
E

Mary Latham

7 years ago

ooops pressed send too soon again

Even an "honest" mistake is no defence in law.

Mark Reynolds

7 years ago

@Mary - take 3 minutes out instead of rushing lol 🙂

No its not a defence but can, and has been, allowed to effect the fines imposed - Lost in translation -

I tend to ramble when I am trying to contextualise my point and as a result I keep typing and before you know it I have posted a comment that is not really useful but you get the point...What I am trying to say is that as long as the point gets across you understand what i am saying. Does this make sense? Let me put it another way...Oh forget it you get the point 🙂 LOL!

Mark Alexander

7 years ago

Hi Mary

A friend of mine was telling me this lunchtime that many landlords still don't realise they need to protect deposits, despite the regulations having been in place since April 2007. We even discussed an example of a well known lawyer tweeting an article that suggested that nothing had changed! For the likes of you and I this is very obvious but I've now been convinced that many landlords are blissfully unaware of the rules. Come next year when the new rules kick in I suspect we will start to hear some real tales of woe from these landlords who can't refinance, can't sell their properties and can't get rid of their tenants from hell. Thank you for raising attention this issue here. If this article helps just a few landlords to realise the implications it will have been worth it.

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