New Tenancy Deposit Legislation takes effect from Good Friday

On the 6th April 2012 Section 184 of the Localism Act 2011 will be in force.

The three significant changes which the legislation brings are:-

1. Alteration of the current 14 day timescale for protecting the deposit. The 14 days will be changed to 30 days from the date of receipt of the deposit.

2. The closing of current loopholes. The decisions in Tiensia v. Vision Enterprises Limited 2010 and Hashemi v Gladehurst 2011 will no longer assist landlords who have failed to register the deposit within the 14 days. A landlord WILL be obliged to protect the deposit within 30 days and if he fails to do so he is in breach of the legislation and the tenant can immediately issue proceedings against him or his agent.

Protection after 30 days, or after issue of proceedings, will not be sufficient to remedy the landlord’s failure. Landlords will not be able to argue the Hashemi point once the tenancy is over, as tenants are also going to be entitled to issue proceedings once the tenancy has ended. The ‘must also’ loophole, which allowed landlords to return the deposit to a tenant before a hearing and then assert that the court could not return that money to the tenant and therefore it could not ‘also’ make an award of the three times penalty, has also been closed by removing the word ‘also’ from the legislation.

3. Change to the current regime of penalties. The penalty of three times the value of the deposit will also end. The court will have a discretionary power to award a penalty of between one and three times the value of the deposit.

Section 21 Notice

Agents and landlords must ensure that the deposit has been protected and that the tenant has been provided with prescribed information within 30 days of receipt of the deposit before a Section 21 notice is served. Where the deposit has not been registered and the prescribed information not been sent to the tenant within 30 days the landlord or agent only has one viable option if he seeks vacant possession. That is to hand the deposit back to the tenant and the serve the notice. If a landlord or agent has not protected the deposit within the 30 days and returns the deposit to the tenant so that a Section 21 can be served any deductions must be agreed by the tenant. This should be in wriitng.

Please note:

The legislation does change the definition of a ‘deposit’, or the restriction on taking property as a deposit instead of money. So, court decisions which interpret these unchanged parts of the legislation are not affected.

One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.

The changes do not apply to a tenancy that is not “live” on 6th April 2012. We would advise that agents and landlords should begin to check their agreements and register deposits and provide the prescribed information if they discover they have not done so to in order to avoid the new penalties.

Aisha Akhtar