Last updated: 22nd March'12 at 8:14pm

Localism Act and Tenancy Deposit Schemes

Posted by on November 22, 2011 in New Legislation, News, Tenancy Deposit | 4 comments

The Localism Bill is now officially the Localism Act. The tenancy deposit provisions of the Localism Act take effect on 6 April 2012

Of interest to private landlords in particular will be section 184 of the Act which makes significant changes to the tenancy deposit provisions contained in the Housing Act 2004.

Highlights of the changes are:

  • The time for protecting a deposit is increased from 14 days to 30 days
  • The time for supplying the prescribed information is also increased from 14 days to 30 days
  • The time limit of 30 days will be absolute and protection (or providing prescribed information) after 30 days will not prevent a penalty being payable to the tenant [authors note: but by doing so albeit late may well reduce the penalty]
  • The penalty payable will be between the amount of the deposit and up to three times deposit as the court sees fit
  • If a landlord has failed to protect within 30 days, the landlord may only serve a section 21 notice by repaying the deposit in full, making deductions that are “agreed” with the tenant or if an application for the penalty has been determined.
  • If a landlord has protected the deposit within 30 days but failed to provide the prescribed information, then it would seem late providing of the prescribed information is permissible in order to then serve a section 21 notice.

The changes will apply to any unprotected deposit where the tenancy is in effect on or after 6 April 2012 so the changes apply to deposits received before 6 April but only where the tenancy is in effect on or after 6 April. If this applies, the landlord or agent has 30 days to protect the deposit and issue prescribed information to avoid the new rules.

If a tenancy has converted into an assured shorthold tenancy since 2007 and the deposit is unprotected, it may be the case that the deposit will now need protecting due to the wording of the commencement order.

The new rules don’t apply to any unprotected deposits where the tenancy was not in effect (ended) before 6 April 2012.

To summarise with some common scenarios, the following will apply:

 

Penalty provisions (see later for section 21 notice prohibitions):

Deposit protected and prescribed information given within 30 days of receiving the deposit

It’s all good. No problems! No penalty payable.

 

Deposit protected and prescribed information given on day 45 (so 15 days late)

If applicant is currently a tenant when application is made AND hearing held whilst applicant is a tenant, the following will be ordered (without any defence available to the landlord)

  • Order the person who appears to be holding the deposit to repay it or, order that person to protect the deposit [authors note: strange this has been kept because if DPS protecting deposit no "person" is holding deposit but the court is required to make one of those two orders] and,
  • The landlord must pay the applicant (tenant) not less than the amount of the deposit and not more than three times deposit within 14 days. [It is submitted in a case where deposit is only 15 days late, the lowest possible amount would normally be ordered].

If applicant is a former tenant (or was a tenant at time of application but is no longer a tenant at time of hearing), the following will be ordered (without defence). It is worthy of note, the former tenant will have 6 years to make a claim [section 5 or 9 Limitation Act 1980].

  • The court “may” order the deposit to be repaid to the applicant (the use of the word “may” indicates deductions for rent arrears or damages may be claimed and offset at this stage or, if deposit already repaid this is unlikely to be ordered) and,
  • The landlord “must” pay the applicant (former tenant) not less than the amount of the deposit and not more than three times deposit within 14 days. [It is submitted in a case where deposit is only 15 days late, the lowest possible amount would be payable].

 

Deposit NEVER protected (nor prescribed information given) by the time of any hearing. Application by a former tenant after 4 years and landlord has never repaid tenant the deposit:

  • The court may order the deposit to be repaid to the former tenant and,
  • The landlord “must” pay the applicant (former tenant) not less than the amount of the deposit and not more than three times deposit within 14 days. [It is submitted in a case where deposit never protected, the highest possible amount would be payable].

 

Deposit protected within 30 days but prescribed information given on or after day 31

If applicant is currently a tenant when application is made AND hearing held whilst applicant is a tenant, the following will be ordered (without any defence available to the landlord)

  • Order the person who appears to be holding the deposit to repay it or, order that person to protect the deposit [authors note: strange this has been kept because if DPS protecting deposit no "person" is holding deposit but the court is required to make one of those two orders] and,
  • The landlord must pay the applicant (tenant) not less than the amount of the deposit and not more than three times deposit within 14 days. [It is submitted in a case where prescribed information is slightly late, the lowest possible amount would normally be ordered].

If applicant is a former tenant (or was a tenant at time of application but is no longer a tenant at time of hearing), the following will be ordered (without defence). It is worthy of note, the former tenant will have 6 years to make a claim [section 5or 9Limitation Act 1980].

  • The court “may” order the deposit to be repaid to the applicant (the use of the word “may” indicates deductions for rent arrears or damages may be claimed and offset at this stage or, if deposit already repaid this is unlikely to be ordered) and,
  • The landlord “must” pay the applicant (former tenant) not less than the amount of the deposit and not more than three times deposit within 14 days. [It is submitted in a case where prescribed information was slightly late, the lowest possible amount would be payable].

 

Prohibition of serving a section 21 notice:

Deposit protected and prescribed information given within 30 days of receiving the deposit

It’s all good, a section 21 notice may be served at any time but you must wait until after an authorised scheme is “holding” the deposit before serving.

 

Deposit protected and prescribed information given on day 45 (so 15 days late)

Even though the deposit has been protected, because it was late a section 21 notice may still not be served without more. In order to serve a section 21, the deposit must be:

  • Repaid in full to the tenant or,
  • Repaid with such deductions as are agreed between the landlord and tenant (so offsetting against rent for example would need the tenant’s “agreement” first) or,
  • An application by the tenant has been made under section 214(1) (penalty provisions discussed above) and that application has been determined by the court, withdrawn or settled by agreement between the parties.

 

Deposit NEVER protected (nor prescribed information given):

No section 21 notice maybe served.

 

Deposit protected within 30 days but prescribed information not given (or insufficient information given)

No section 21 notice maybe served until such time as the prescribed information has been given (the fact that the prescribed information and only the prescribed information is late is OK for serving a section 21 notice but the penalty would still be payable as above

4 Comments

  1. If the law is an ass or in a mess we must blame the legislators or their officious servants, the civil servants who draft the bill. Where is the balancing legislation to protect landlords against theft and criminal damage?

    • The law ‘Is an Ass’. The vexatious, needless landlord thumping is still inherent within the new rulings. Where are the Rules when it comes to justice. The rules still bind honest error into absolute penalties! There are court procedural rules that are meant to prevent undue penalties, these are completely ignored when it comes to ‘Tenants Deposits’…!

  2. What if the initial requirements are met and prescribed info is served within 30 days, but at the end of the tenancy, the deposit is unprotected by the scheme before repayment is agreed? (as per the DPS insured scheme rules). Here T may apply under subsection 1 so is penalty due?

    • Hello

      I think this would depend on very specific timings on each specific case but schedule 10 contains detailed procedures for dealing with a deposit which becomes unprotected. However, I think they only apply during the tenancy.

      I can’t see quickly a case where the deposit is unprotected at the end of the tenancy and then the landlord somehow being liable to a penalty. This might depend on if there is some fraudulent act to unprotect the deposit though but I would need to check the individual facts of the case.

      Many thanks

      Guild of Residential Landlords

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  1. Tenancy Deposit Schemes Commencement Provisions for 6 April 2012 | GRL Landlords Association - [...] details of the commencement of the Localism Act 2011 that relates to tenancy deposit schemes. We have already reported …

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