Tenancy Deposits – what landlords need to know

The starting point always when considering tenancy deposits is that they are not the landlord’s money.

The tenancy deposit money belongs to the tenants.

What are tenancy deposits?

They are a payment made to the landlord of a sum of money for them to hold for the duration of the tenancy, which can be used at the end of the tenancy if the tenant owes the landlord any money in connection with the tenancy.

This could be things like:

• Unpaid rent
• Repairs that need doing which are not down to ‘fair wear and tear’
• Replacing items that have been broken during the tenancy’
• etc

However, before the landlord can actually do this, there needs to be something else.

Written authority

There needs to be authority given to the landlord to use this deposit money, in the tenancy agreement.

This will normally take the form of a tenancy agreement clause which provides for the landlord to make deductions from the tenancy deposit money for money owed to the landlord in respect of breaches of the terms of the tenancy agreement.

If there is no such clause, particularly if the tenancy agreement does not mention the tenancy deposit at all – then the landlord is not entitled to make any deductions and will not be able to succeed if a deduction is disputed and goes to adjudication

Deposit v. rent

Sometimes, as in the case of Johnson v. Old, there is some confusion as to whether a payment is a deposit or whether it is rent.

Often this is in circumstances where a landlord has taken a payment which he wants to use as a tenancy deposit but does not want to have to protect under a scheme.

This is the best way to look at it:

• If a payment is taken and applied to towards the rent immediately (even if the agents do not actually pass all the money over to the landlords at once) and the tenant is not expected to pay any more for the period of time the payment covers, and if it is clear that the money will not be refunded – then it will be rent.
• Otherwise, it could be held in some circumstances to be a deposit.

The tenancy deposit scheme

This only applies to assured shorthold tenancies so if the tenancy is (for example) a common law one, or an assured tenancy (or if it is not a tenancy all – for example if it is a lodger situation), you will not need to protect the deposit.

Assuming the tenancy IS an assured shorthold tenancy then the landlord must

• protect the deposit money with one of the three authorised tenancy deposit schemes, and
• serve ‘prescribed information’ (I will look at prescribed information in a separate article)

within 30 days of payment of the deposit money.

The three schemes are

• TDS
• My Deposits
• The Deposit Protection Service (DPS)

All these organisations offer ‘insurance’ backed schemes where the landlord can hold the money in his own bank account but has to pay a fee to the scheme.  Then if the landlord runs off with the money, the tenant will be paid by the scheme (who will then chase the landlord for repayment).

All the schemes now also offer ‘custodial’ schemes. Here the landlord is not charged for using the scheme but the deposit money must be paid over to the scheme administrators to hold.

If the deposit is not protected

• Then the landlord will be vulnerable to being sued by the tenant for a penalty of between 1 and 3x the deposit sum and
• The landlord will not be able to serve a section 21 notice unless
  • the deposit money is returned to the tenant (and deductions can ONLY be made with the tenants consent) or
  • There has been a claim for the penalty which has been resolved by agreement or a court order

There are no exceptions

I am often contacted by people who have not protected the deposit – either because they forgot or because they were not aware of the need to do so.

Invariably they want me to tell them how they can use section 21 to evict their tenant without having to refund the deposit money.

However, this cannot be done. There are no exceptions. You cannot evade the law just because you are a nice person or because there was some excellent (according to you) reason why you should not have protected.

Problems with the law

There have been a lot of problems with this legislation and we have recently had a new round of changes correcting the problems which came from the Superstrike case.

These are dealt with in separate articles on this site.

It is to be hoped that this legislation can now settle down and we can have a period of time without issues relating to tenancy deposits.