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Tenancy deposits: not all landlords can relax now the election is over

by Published on

Under the current law, landlords (except certain limited excluded areas, such as universities or colleges who offer accommodation directly to students) are required to place the deposit of a tenant who occupies a property under an assured short-hold tenancy (“AST”) in one of three government-backed schemes. These schemes are the Deposit Protection Service (“the DPS”), MyDeposits or the Tenancy Deposit Scheme.

Grey Street

The requirement to hold a deposit in one of these schemes became law in April 2007. However, the law is retrospective in application and it is therefore a requirement to place deposits taken for tenancies granted before this date into one of the schemes.

The Deregulation Act 2015 states that, if such a deposit is not placed into one of these schemes by the deadline of 23 June 2015, a landlord faces a fine of up to three times the amount of the tenant’s deposit amount.

Therefore, even landlords of tenants who have occupied the same property for a period which began before this date need to comply with the requirement. Accordingly, the vast majority of deposits need to be protected in one of these schemes, one of which (the DPS) is free to use, but does not allow the landlord to retain the deposit during the period of the AST. The other two charge nominal fees but allow the landlord to hold the deposit (meaning it could gain interest outweighing the fee paid).

Aside from the monetary penalty, the section 21 notice, which must be served on a tenant before they can be compelled to leave the property at the end of the agreed term, cannot be served before the deposit has been placed into a scheme. A landlord may therefore find that they cannot remove a tenant at the end of the term.

Accordingly, as it is just over a month to the deadline, landlords who have not placed their tenant’s deposit into a protected scheme cannot relax just yet and should ensure they do so as a matter of urgency.

Chris Morgan is a Solicitor in the Commercial Property and Corporate Department.

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