Update on the Tenancy Deposit Scheme 2013 And Guidance on the Service of Section 21 Notices

Adrian Newborough

Fosters Solicitors, William House, 19 Bank Plain, Norwich, Norfolk, NR2 4FS

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As a reminder to all landlords, since 6 April 2007, it has been mandatory for landlords to join a Tenancy Deposit Scheme (“TDS”) where a deposit is paid by a tenant under a residential assured shorthold tenancy

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There are two different types of schemes available to Landlords

An insurance TDS, under which the landlord retains possession of the deposit but secures it by paying a fee and insurance premiums to the scheme administrator. The scheme administrator will then use the premiums to pay the tenant should the landlord misappropriate the deposit; or

A custodial TDS, which requires the landlord to pay its tenant’s deposit to a scheme administrator within 30 days of receipt from the tenant. The scheme administrator then holds the deposit until the tenancy comes to an end. The deposit (or balance due to the tenant) is then returned to the tenant.

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The Localism Act 2011 has, amongst other things, brought about significant changes to the requirements under the Housing Act 2004 and in particular, the manner in which a deposit is protected. Section 184 of the Localism Act 2011 came into force earlier this year and amended sections 213 to 215 of the Housing Act 2004. The upshot of these amendments is that:

The period for the landlord to protect a deposit in accordance with the rules of the TDS and give prescribed information to the tenant has been increased from 14 to 30 days;

If a landlord fails to comply with the TDS, the tenant can apply to court even if the tenancy has ended; and

The penalty for failing to comply with the TDS will be between one and three times the deposit

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It is not enough to simply secure the deposit and landlords must provide the statutory prescribed information’ within 30 days of receiving the deposit. That information includes, but is not limited to, the value of the deposit which has been paid, the address of the property to which the tenancy relates, and the circumstances upon which all or part of the deposit should be retained by the landlord with reference to the terms of the tenancy.

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I have produced the text of the Housing (Tenancy Deposits) (Prescribed Information) Order 2007:

Prescribed information relating to Tenancy Deposits

2.—(1) The following is prescribed information for the purposes of section 213(5) of the Housing Act 2004 (“the Act”)—

(a) the name, address, telephone number, e-mail address and any fax number of the scheme administrator(1) of the authorised tenancy deposit scheme(2) applying to the deposit;

(b) any information contained in a leaflet supplied by the scheme administrator to the landlord which explains the operation of the provisions contained in sections 212 to 215 of, and Schedule 10 to, the Act(3);

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(c) the procedures that apply under the scheme by which an amount in respect of a deposit may be paid or repaid to the tenant at the end of the shorthold tenancy(4) (“the tenancy”);

(d) the procedures that apply under the scheme where either the landlord or the tenant is not contactable at the end of the tenancy;

(e) the procedures that apply under the scheme where the landlord and the tenant dispute the amount to be paid or repaid to the tenant in respect of the deposit;

(f) the facilities available under the scheme for enabling a dispute relating to the deposit to be resolved without recourse to litigation; and

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(g) the following information in connection with the tenancy in respect of which the deposit has been paid—

(i) the amount of the deposit paid;

(ii) the address of the property to which the tenancy relates;

(iii) the name, address, telephone number, and any e-mail address or fax number of the landlord;

(iv) the name, address, telephone number, and any e-mail address or fax number of the tenant, including such details that should be used by the landlord or scheme administrator for the purpose of contacting the tenant at the end of the tenancy;

(v) the name, address, telephone number and any e-mail address or fax number of any relevant person;

(vi) the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy; and

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(aa) the information he provides under this sub-paragraph is accurate to the best of his knowledge and belief; and

(bb) he has given the tenant the opportunity to sign any document containing the information provided by the landlord under this article byway of confirmation that the information is accurate to the best of his knowledge and belief.

(vii) confirmation (in the form of a certificate signed by the landlord) that—

(2) For the purposes of paragraph (1)(d), the reference to a landlord or a tenant who is not contactable includes a landlord or tenant whose whereabouts are known, but who is failing to respond to communications in respect of the deposit.

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What happens if the landlord secures the deposit in a scheme but fails to provide the prescribed information?

The answer was given by the Court of Appeal in the case of Ayannuga v Swindells 2012 [Court of Appeal]

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The case was an appeal in relation to a case heard in the Woolwich County Court, part of which related to Prescribed Information in relation to tenancy deposits.  In the original case it was clear that a deposit of £950 had been paid to the landlord.The landlord had been forced to let out the family home and the tenancy agreement made it clear that the deposit would be lodged with the custodial scheme (DPS). The Court was advised that the deposit had indeed been lodged with the DPS.

A rented house somewhere in Woolwich

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However the tenant had not been served with the required Prescribed Information nor the Scheme leaflet. Just before the Deputy District Judge gave his judgment the landlord provided more information about the deposit in a document entitled the “Additional Information Document”. The Deputy District Judge concluded that although the landlord had not complied fully with the precise requirements of the Prescribed Information Order the landlord had done enough to meet them in substance.

However the Court of Appeal took a different view. Lawyers for the landlord sought to argue that the failure to provide the Prescribed Information and scheme leaflet were “essentially…procedural points” which had left the appellant in “no serious or disadvantaged position”.  The Court of Appeal noted that the landlord had been unrepresented in the original hearing and that it was “not a case of a wealthy landlord seeking to exploit an impecunious tenant”.  However Lord Justice Etherton concluded that the Deputy District Judge had “reached a conclusion in relation to the deposit which was outside a proper exercise of judicial judgement and evaluation”.

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The Court of Appeal considered that the landlord had not done enough to meet the following requirements of the Prescribed Information Order:

1. Setting out the procedures that apply under the Scheme by which an amount in respect of a deposit may be paid or repaid to a tenant at the end of the shorthold tenancy;

2. Detailing the procedures that apply under the Scheme where either the landlord or the tenant is not contactable at the end of the tenancy;

3. Explaining the procedures that apply under the Scheme where the landlord and the tenant dispute the amount to be paid or repaid to the tenant in respect of thedeposit;

4. Describing the facilities available under the Scheme for enabling a dispute to be resolved under the Scheme for enabling a dispute to be resolved without recourse to litigation

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Although the tenancy agreement and the additional information which the landlord had provided did provide some information about the process to be adopted at the end of the tenancy, it did not meet the requirements of the Prescribed Information Order. Even worse, the landlord had provided a pro forma tenancy agreement which said the deposit was being held by an agent in an insurance scheme when in fact it was taken by the landlord and transferred to the DPS custodial scheme.

The test for the Court was whether they had been substantial compliance. The Court of Appeal found that the information provided to the tenant in respect of the deposit was not substantially compliant with the Prescribed Information Order. They said that “Parliament regards the landlord’s obligation to provide the prescribed information as being of equal importance to his duty to safeguard the tenant’s deposit”.

The Court of Appeal allowed the tenant’s appeal and required the landlord to pay the deposit of £950 to the tenant and to pay an additional £2,850 to the tenant, being three times the deposit. The landlord would have also got landed with an order for costs which are likely to have dwarfed the amount he had to repay to the tenant.

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Our Friends in the North and South Blazing a Trail for Localism

It is important to note that this case was based on the law applicable prior to the amendments made in the Localism Act 2011.  The penalty for non-compliance with the Order for any deposit (whether taken before or after the 6 April 2012) would be the repayment of the deposit and a penalty of up to three times the deposit. 

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So the key points here are to make sure that you:

1. Serve the Prescribed Information within the 30 day deadline

2. Provide all of the information in the Prescribed Information Order

3. Set out clearly in the tenancy agreement who is holding the deposit and where it is protected

4. Don’t rely on outdated tenancy agreements (I saw one only last week which hadbeen granted in October 2012 but contained an old style pre 2007 contractual provision where the landlord said he was to hold the deposit and the terms on which he could make deductions from it. This was by a landlord who had been letting property for more than 20 years, so experience is not everything).

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Service of a Section 21 Notice

Under Section 215 of the Localism Act 2011 a landlord may not serve a Section 21 Notice if the deposit has not been protected within 30 days Unless the deposit has been returned to the tenant, or agreement has been reached with the tenant as to the terms on which it has to be returned (e.g. agreed deductions).

On an accelerated possession claim form (reproduced below)

Paragraph 7 provides detailed information regarding the service of Section 21 Notices

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Your checklist prior to serving a Section 21 Notice is:

1. Check the deposit is secured and the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 has been complied with.

2. If the Deposit has not been protected or the prescribed information was not given within 30 days of receipt, then return the deposit or agree what deductions are to be made. Be careful about how you explain your failure to the tenant and don’t put them on notice.

3. Check the tenancy agreement and see if the notice must be served in a particular way e.g. does it say it may be served by post.

4. If there is a break clause giving the landlord the right to end it earlier than the end of the fixed term, make sure the conditions have been strictly adhered to.

5. If the tenant is a periodic tenant (e.g. from month to month) then make sure you use the correct form (one of them may only be used during the fixed term of a tenancy). If in doubt use the saving provision of “after the end of the period of your tenancy which will next end after the expiration of two months from service”. If it is fixed term tenancy then make sure you use the correct date.

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