A deposit is defined in Section 212(8) of the Housing Act 2004 as ‘…any money intended to be held (by the landlord or otherwise) as security for the performance of any obligations of the tenant or the discharge of any liability of his arising under or in connection with the tenancy’.
The Housing Act 2004, and more specifically Chapter 4 of the Act, sections 212 – 215 and Schedule 10, requires that deposits for all assured shorthold tenancy (AST) agreements created on or after 6th April 2007 be protected under a Tenancy Deposit Scheme.
Not doing so will give the tenant the right to apply to the county court where they might be granted an order for the landlord to pay the deposit back to them, on top of a sum equal to three times the amount. Failing to follow the Act to the letter could therefore be a fairly costly experience for a landlord.
Before 6th April 2007, landlords were free to decide whether they required deposits from their tenants, usually some 4 to 6 weeks worth of rent, and what to do with that deposit. There was no guidance on where to put the money either, and no requirement to pay back interest, so a tenant’s deposit could sit in a bank account for the period of the tenancy accruing interest for the landlord’s own benefit.
This is no longer the case, however, and all deposits received in relation to an AST must be paid into a Government approved deposit scheme within 14 days (Section 213). In addition, certain information about the deposit must be supplied by the landlord to the tenant within those 14 days.
The latter requirement includes such information relating to:
– The authorised scheme applying to the deposit,
– Compliance by the landlord with the initial requirements of the scheme in relation to the deposit,
– The operation of provisions of this Chapter in relation to the deposit,
The schemes themselves were created to enable landlords to better manage the deposits they receive and two types of scheme are offered: custodian and insurance.
The Schemes offer an alternative dispute resolution service, as well as giving landlords and tenants the option to resort to the courts.
A useful copy of the relevant section of the Act can be found on this link.
Further information on tenancy agreements can be found via our article on landlords’ and tenants’ responsibilities, here.