Where a deposit has not been protected within the prescribed time, landlords must return the deposit to the tenant or face being prevented from recovering possession of the property.
At present landlords must protect a deposit with an authorised scheme within 30 days of receiving it.
If a deposit was received between 6th April 2007 and 5th April 2012 landlords were required to protect the deposit within 14 days of receipt. From 6 April 2012, the period was extended to 30 days as it is currently. It is also now the case that if the landlord received a deposit before 6 April 2007 the landlord must have protected the deposit by 24 June 2015.
The consequences of failing to do so are severe, and the court requires strict compliance. It doesn’t matter if the landlord is even a day late, the same sanctions apply. That said, the sanctions can vary dependent on the severity of the landlord’s behaviour, as explained below.
If the deposit wasn’t protected in time, a landlord will not be able to recover possession by serving a section 21 notice until they have complied with the rules. The unprotected deposit will make the notice invalid and proceedings based on it will fail.
The landlord may still be able to recover possession through section 8 notice proceedings if the relevant grounds are made out. However, there is a risk that the tenant will bring their own claim against the landlord for failure to protect the deposit in time or at all. The court may order that the landlord repay the deposit and that the landlord pay the tenant a sum of up to three times the value of the deposit. Modest breaches tend to attract a penalty of one times the deposit and more flagrant breaches up to three times the deposit.
If the section 8 notice is relying on the tenant’s rent arrears then the deposit claim could offset the rent arrears and result in the landlord being unable to rely upon the mandatory ground 8. The court might make an order on discretionary grounds, but it might not – leaving the landlord with legal costs, unpaid rent and no possession. Clearly if the tenant’s deposit claim completely extinguishes the rent arrears it is very likely that the possession claim will fail.
So what is a landlord to do? The deposit must be repaid. If the deposit is repaid, then the first sanction does not apply; the landlord will be able to serve a valid section 21 notice.
The second sanction may also become less severe – if the landlord returns the deposit to the tenant it is more likely that the court will order a lower penalty figure be paid to the tenant.
It is important to note that the landlord must be able to prove that the deposit has actually been returned to the tenant. This is not difficult if the landlord has not protected the deposit and has the tenant’s bank details; the money can be simply transferred into the tenant’s account and the bank statement will serve as evidence of payment.
If the deposit is protected within a scheme late, the landlord must make a request to the specific deposit protection scheme for the deposit be returned. The scheme’s procedure must be used: the landlord cannot use their own funds to repay an amount equivalent to the deposit. The difficulty in this scenario is that the tenant can evade the return of the deposit via the scheme and until the scheme confirms that the deposit has been repaid to the tenant, the landlord will not be able to serve a valid section 21 notice. This may mean that it is impossible to recover possession using the section 21 procedure. The landlord will either have to take the risk of relying on section 8 proceedings or wait for the tenant to leave voluntarily.
The necessary information prescribed by the deposit scheme the landlord is using must also be served on the tenant within the timescales set out above.
Failure to serve the prescribed information will also result in the landlord being unable to serve a section 21 Notice. However, unlike with protecting the deposit, the landlord is able to simply resolve this problem by serving the prescribed information before the section 21 notice is served.
The monetary penalties for failing to protect a deposit properly are also applicable to failure to serve the prescribed information. However, it is likely that any penalty will be at the lower end of the scale as this failure is a more modest breach.