The Court of Appeal has held that a landlord was not required to pay a rent deposit in respect of an assured shorthold tenancy (AST) into an authorised scheme, where there was no authorised scheme at the time the deposit was received. However, the landlord could only make use of the procedure in section 21 of the Housing Act 1988 to end the AST if the deposit was returned to the tenant, or possibly if it had been protected in an authorised scheme at the time the notice was served.
Any landlords still holding tenancy deposits received before 6 April 2007 will be relieved that the court had no hesitation in finding that there is no direct obligation to register those deposits.
This business briefing explains what a tenancy deposit scheme (TDS) is and what a landlord’s obligations are under a TDS.
What is a tenancy deposit scheme? A landlord under an assured shorthold tenancy (AST) must protect a tenant’s deposit by using an authorised tenancy deposit scheme (TDS) operated by an approved scheme administrator. A TDS has two main objectives:
- To ensure that, when a tenant pays a deposit, it will be protected and returned to the tenant at the end of the AST, except when the landlord has a legitimate claim on it
- To resolve disputes between landlords and tenants using dispute resolution rather than via the courts
There are two types of TDS:
- A custodial TDS requires a landlord to pay its tenant’s deposit to a scheme administrator, who holds the deposit until the tenancy ends
- An insurance TDS where the landlord retains possession of the deposit, but secures it by paying a fee and insurance premiums to the scheme administrator
What are a landlord’s obligations under a TDS? Within 30 days of receipt of the deposit a landlord must:
- Comply with the “initial requirements” of the TDS
- Give the tenant certain prescribed information. This information should be provided directly to the tenant. It is not sufficient to merely identify the TDS and let the tenant make their own investigations
What sanctions are available if a landlord fails to fulfil their obligations under a TDS? If a landlord fails to comply with the TDS, a tenant can apply to court even if the tenancy has ended. The penalty for failing to comply with the TDS will be between one and three times the deposit.
The content of this Business Briefing is for information only and does not constitute legal advice. It states the law as at January 2015. We recommend that specific professional advice is obtained on any particular matter. We do not accept responsibility for any loss arising as a result of the use of the information contained in this briefing.