Landlords, are you ready for the important changes to the residential Tenancy Deposit Protection schemes?

27/04/2012

The scheme rules have tightened quite drastically, closing any loopholes that had previously given landlords an advantage.

Since April 2007, tenancy deposits paid to landlords must be paid into a TDS scheme approved by the government. There are 3 organisations which currently run these schemes.

The currently approved schemes are:

  1. DPS - a custodial scheme where the money is kept in a custodial account held by the DPS. This is the largest scheme in operation.
  2. My Deposits - an insurance backed scheme, used by the majority of private Landlords. Here, Landlords benefit from physically holding onto the deposit in a ring fenced account.
  3. TDS - an insurance backed scheme used by some letting agents

The scheme rules have tightened quite drastically, closing any loopholes that had previously given landlords an advantage. Here is a run-down of the important changes to Tenancy Deposit protection schemes;

Previous April 2007 Scheme rules

Major changes in effect from April 2012

A Tenancy Deposit must be paid into a TDS within 14 days of receipt

The period for the landlord to protect the deposit in a TDS has increased to 30 days.

prescribed information about the scheme also being served on the tenant within 14 days of receipt

The period for the landlord to provide the prescribed information has increased to 30 days.

If a Landlord failed to comply with the requirements, (ie) paying a deposit into the TDS, and providing the required prescribed notices, the Landlord could be prevented from recovering possession of the property by being unable to serve a valid s21 on the tenant, meaning they could not evict a Tenant through the courts.

HOWEVER, the Landlord could arrange to protect the Deposit late, so that the Landlord paid the deposit into the TDS, serve the prescribed information, before issuing the s21 notice to successfully evict the tenant.

It will no longer be possible for a landlord to serve a valid section 21 notice after paying the tenant's deposit into a TDS out of time. The only way a landlord will be able to do this is by paying all of the deposit money back to the tenant, by agreeing with the tenant that they can offset all or part of the deposit against damage or unpaid rent, or by the tenant bringing a claim for non-compliance in the courts which has been resolved.

Under the previous rules, the tenant had the right to apply to court for an unprotected deposit to either be paid into a TDS or returned to them. They could also apply for a payment from the landlord of three times the deposit sum.

The courts now have the discretion to award penalties for non-compliance of between one and three times the deposit amount.

Where a Tenant claimed that a Landlord had not complied with the rules, the Landlord could avoid the 3 x deposit penalty by protecting the tenant's deposit at any time up until the day before the hearing.

Even though Landlords are able to protect the deposit late, after the 30 day period, it is no longer a defence to a tenant's claim for a penalty payment. A penalty cannot now be avoided by paying into a scheme prior to a court hearing.

Tenants were prevented from applying to court once their tenancies had ended, meaning that in practice, the penalty was very rarely granted.

Tenants will now be able to bring claims after their tenancy has ended. It is often only once a tenancy has ended that a tenant becomes aware that his or her deposit has not been paid into a TDS, and consequently this change increases the likelihood of claims against being pursued against landlords for non-compliance.

Residential landlords have until 6 May 2012 to ensure that all their tenancy deposits are properly protected and that they have sent the prescribed information to tenants.

Failure to comply will enable your tenants to bring a claim which you will not be able to defend, and you could find yourself liable to pay a considerable penalty.

**This note does not constitute legal advice. Specific legal advice should be taken before acting on the above article.

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