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Residential Landlords – The Tenancy Deposit Pitfall

The Court of Appeal has had a further look at the issue of tenancy deposits for assured shortholds under the Housing Act 2004.  The idea behind the scheme was, as one judge put it, “to put an end to complaints by residential tenants that their deposits had been unreasonably withheld by their landlords at the termination of the lease, or, in some cases, had even been misappropriated”.  The landlord has both to protect the deposit in a scheme and provide the tenant with information about the scheme used. 

There is a down side for landlords whilst the deposit is not held under an authorised scheme or the landlord has not complied with the initial requirements of an authorised scheme within 14 days of receiving the deposit.

The landlord in such a situation is in a poor position because:-

  1. He cannot serve a S21 Notice to regain possession unless he repays the deposit in full or with such deductions as are agreed with the tenant or ordered by the Court. He would be between a rock and a hard place; he cannot regain possession under the mandatory ground under S21 and will be left relying upon the grounds in Section 2 of the Housing Act 1988.  In the alternative, if he returns the deposit to enable him to serve the s21 Notice he loses the protection afforded by the deposit.
  2. The second unpleasant consequence is that the Act allows the tenant to seek the return of the deposit and an order that the landlord pays an amount not less than the amount of the deposit and not more than three times the deposit within 14 days.  The tenant can apply to the Court on the 31st day after paying the deposit.  The Court has a discretion as to the amount of the penalty to be imposed on the landlord but it cannot be less than the amount of the deposit.  Potentially, worldly wise tenants could seek to profit from disorganised or inexperienced landlords.

The lesson must be - if in doubt about a deposit under an assured shorthold get advice – do not risk the double whammy of a claim by the tenant and the inability to use the S21 procedure to gain possession.

Speak to Jame Staton on 01274 377651 to get further advice. 

About the Author

James Staton


James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

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