Tessa’s Tenancy Tips: Protecting the tenancy deposit

Tenancy Deposit Protection recently celebrated its 10th Anniversary; however despite this there are still some landlords who are unaware of how to protect a tenancy deposit.

I have lost count of the number of times I have been advising a landlord on their eviction case prospects and they say “Oh, by the way, I protected the deposit a bit late - but that’s not a problem, is it?”

The answer is that, yes, it is a problem. Many landlords still seem to be under the impression that their circumstances put them outside the rules. But the truth is that no-one is outside the rules.

Here are the main excuses that I hear:

  • “I allowed the tenant to pay the deposit by instalments and am still waiting for the final instalment” 

Each and every instalment must be protected within the 30 day deadline. My advice? Never allow tenants to pay by instalments.

  • “It was my agent who failed to protect the deposit, not me” 

As a landlord you are still responsible, although the agent is jointly and severally liable with you for the penalty. Tip - take more care when selecting your agent

  • “I am just an accidental landlord, I can’t be expected to know these things”

I am afraid you are. This is why you need to either get training before managing your property yourself or use a decent agent

Even if some unknown circumstance prevented you from physically being able to protect the deposit within the deadline 30 days, you will still be liable. The penalty for not protecting a deposit can be up to three times the deposit value, so it really isn’t worth the risk.

 

So, what do you need to do to be compliant?

  1. Protect the deposit in a government authorised tenancy deposit scheme, such as TDS 
  2. Serve the ‘prescribed information 

Both these tasks need to be done within 30 days from receipt of the money, not from the start of the tenancy. So, you may need to protect the deposit before the tenancy has begun if your tenants pay the deposit early.

People often come unstuck over the prescribed information. There is no prescribed form - it is the information which is prescribed, not the form, and it is set out in regulations here. If you are protecting your deposit with TDS they will provide you with a template you can use and prompt you to deal with things on time. Note that the information leaflet provided by your scheme is not sufficient as it just covers the scheme rules.

You also need to provide information about the parties and the tenancy - in particular the clause in your tenancy agreement which deals with the deductions you can make from the deposit. Note that you must provide the tenant(s) with both the scheme leaflet and the completed prescribed information template from TDS in order to be compliant.

 

What happens if you don’t comply?

If you don’t protect your deposit or protect it late, then:

  • You cannot serve a valid section 21 notice and 
  • Your tenant can bring a claim against you for up to three times the deposit sum. 

Note that you can serve a section 21 notice if you refund the deposit money first to the tenant (and are able to prove this). Money owed to you by the tenant can only be offset if the tenant specifically agrees. (NB I have a kit that can help landlords in this position). There is nothing you can do to prevent the tenant claiming the penalty. Their right to do this is absolute after the 30th day. There is a chance that the Judge will make a lesser award if you try to rectify the situation eg have returned the deposit to the tenant, or protected it as soon as you were aware it had not been protected. There is no guarantee of this, and you may find yourself paying out the full amount.

The best thing though, is to avoid this situation ever happening and take good care to protect your deposit on time!

Next time on Tessa’s Tenancy Tips, I will be looking at right to rent checks.

In the meantime you can find me at www.landlordlaw.co.uk, my Landlord Law Blog at www.landlordlawblog.co.uk and on twitter @TessaShepperson


Tessa Shepperson

Tessa is a lawyer specialising in landlord & tenant law and runs the popular Landlord Law online service for landlords.

 


Posted by Tessa Shepperson on 16 May 2017

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