Residential Tenancy Deposits - Sledgehammer Legislation Repealed

Residential landlords will be relieved to learn that the sanctions that for non-compliance with the rules relating to tenants' deposits taken in connection with assured shorthold tenancies are soon to be relaxed.

Under the rules, which were enacted in the Housing Act 2004 and came into force in April 2007, any deposit taken from a tenant in connection with assured shorthold tenancy must be dealt with in accordance with an authorised Tenant Deposit Scheme (a TDS). The sanctions for non-compliance with the rules are fairly Draconian:

. If a landlord fails to comply with the rules he is barred from serving a two-month notice terminating the tenancy.

. In addition to ordering the landlord to either repay the deposit to the tenant or pay it into a TDS, the court must also order the landlord to pay to the tenant a sum equal to three times the deposit - whether or not the landlord's non-compliance has caused the tenant any loss. The court is allowed no discretion in the matter. This provision has generated considerable litigation with the courts indulging in a certain amount of mental gymnastics in an attempt to mitigate the harshness of the rule.

The Localism Act 2011 makes a number of changes to the rules which are expected to come into force in April 2012:

. The time-limits within which landlords must comply with the requirements of the rules are increased from 14 to 30 days.

. It is made clear that a landlord will no longer be barred from serving a two-month termination notice if:
. The deposit has been repaid to the tenant in full or with such deductions as the parties have agreed; or

. Court proceedings have been determined by the court, withdrawn or settled by agreement between the parties.

. Most importantly, the courts are given a degree of flexibility as to the financial penalty imposed on a landlord in breach. This will be a sum not less than the deposit but not more than three times the deposit.

To find out more, please contact Martin Banham-Hall or Caroline Wilton.

Filed: 28/11/2011 15:21:14