3.8 Tenancy deposits for assured shorthold tenancies
Tenancy deposits for assured shorthold tenancies must be protected in a Government-authorised scheme within the statutory timescale and otherwise in accordance with the relevant scheme rules.
You should consider the amount of a deposit based on what is fair in relation to the potential liability the tenant has in relation to the property.
The tenancy agreement must make provision for the holding of any deposit, specifying:
• how the deposit is to be held; and
• who keeps any interest earned on it.
The tenancy agreement must also state why the deposit is being held and the circumstances in which it is to be released, in whole or in part.
The tenancy agreement should also state which tenancy deposit protection scheme the deposit is held under.
You must make prescribed information regarding the tenancy deposit protection scheme available to the tenant(s) within the statutory timescale of receiving the deposit. See www.gov.uk for further information. The tenant(s) must be given an opportunity to check and sign the prescribed information.
Where a deposit is held by an agent, this should be held as a ‘stakeholder’ on behalf of both parties. These matters should be made clear to the prospective tenant before the deposit is paid and the tenancy agreement is signed.
Where a deposit is held by an agent, deposit money must be dealt with in the same way as other client money (see section 4.21). The letting commission or other charges owed by the landlord to an agent must not be taken from the deposit.
The deposit must be released only in compliance with the terms under which it was originally held.
Tenancy deposits are a big problem area. Many landlords, and indeed letting agents, appear to be unaware that tenancy deposits need to be protected with one of the three government authorised schemes and that prescribed information needs to be served on the tenants – all within a 30 days deadline.
The three schemes
- The Deposit Protection Service (DPS) | www.depositprotection.com
- My Deposits | www.mydeposits.co.uk
- Tenancy Deposit Scheme (TDS) |www.thedisputeservice.co.uk
You will find a huge amount of information on the scheme websites, including in many cases standard forms you can use.
Many landlords and agents also appear to be unaware that if a deposit is not protected in a statutory scheme:
- Section 21 notices served will be invalid unless the deposit money is refunded to the tenants (outstanding money due can only be offset with the consent of the tenants, and
- The tenants are entitled to apply to court for a penalty which will be between 1 and 3 times the deposit sum. Note that if this is done, then the landlord can then serve a valid section 21 notice.
- If it is just the prescribed information which has not been served, then a section 21 notice can be served after the prescribed information has been served, but the landlord / agent will still be liable for the penalty if the tenant decides to claim this through the courts.
Letting agents are equally liable with landlords for the penalty, if the deposit money was paid to them.
The prescribed information
It is essential that all of this is served, not just part of it. In the case of Ayannuga v Swindells in 2012, the landlord lost his claim for possession because he had not complied fully with this requirement. You can see an article about this case here.
Note that altough it is desirable for tenants to sign a copy of the prescribed information, the important thing is that it is served AND you are able to prove service if the tenant denies this later.