Landlord seeks advice on tenancy deposit / section 21 issues

Here is a question to the blog clinic from LJ Filotrani who is a landlord

My question is concerning deposits and Section 21

Tenants moved in on Aug 11, 2012 – they didn’t pay the full deposit until a couple of months into the tenancy so I stupidly did not secure the deposit.

Since then they have given me the run around and now owe me £2,600.

I tried to give their deposit back so that I could serve them a Section 21 – they wouldn’t accept the money.

As they are now more than two months in arrears I have said that I want to start court proceedings under section 8. They have said can I use their deposit to reduce the amount owing. They have sent me a signed letter confirming that I can use the deposit in lieu of rent – my understanding is that I can now serve a Section 21 – is this correct?

And lastly – I understand that the short-hold assured tenancy will automatically become a periodic contract from midnight on Aug 11 – does this mean I could secure their deposit from the beginning of this new contract? And then serve them with a Section 21?

There are a number of issues here.

Deposits paid by instalments

This is very bad news as the fact that the tenant has not paid all the deposit does not mean the landlord does not have to protect what they have paid within the 30 days. Then you have the aggravation of having to protect twice, or even more times if there are more instalments.

My advice is not to accept payment of the deposit by instalments. Better allocate the rent towards the deposit – it will be less problematic in the end.

Refunding the deposit money

You need to pay in a way that they cannot refuse. Obvious candidates are paying the money into their bank account or handing over the cash (or throwing it down at their feet I suppose if they refuse to accept it).

Or you could put the cash in an envelope through the letter box as the lady did in this post here.

Have a witness with you in case the tenants later deny that they have had it.

Offsetting the rent against the deposit with the tenant’s consent

Yes, as you have written confirmation that they have agreed to this, it does now mean you can serve your s21 notice.

This is under the amended Housing Act 2004(2A)(b) which says

(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant,

It does not let you off the penalty however.

Deposit on periodic tenancy arising

The point, which came up in the recent Superstrike case, about the periodic tenancy being a new tenancy is that it means that you may have to re-protect the deposit and re-serve the prescribed information AGAIN. (We are not sure if you actually do or not, as the Court of Appeal decision does not say – this is the problem and the cause of a all the uncertainty).

It does not mean that the periodic tenancy arising is a chance for you to wipe the slate clean and regularise things by protecting the deposit at that stage.

Once you fail to protect and serve the information within the 30 days this brings into play the penalties and you can only serve your s21 notice if you comply with s2A of the act. The options being

• return the deposit money, or
• offset the deposit money against money due from the tenants – but only with their consent, unless
• the tenant has already brought a claim for the penalty, which has been resolved in some way

Advice

As your tenants have now agreed to the offsetting of the deposit against the arrears, I suggest you go down the s21 route.

Otherwise, if you use the s8 / rent arrears ground route, this will give them an opportunity to defend and counterclaim based on a claim for the penalty.