Tenancy deposits: a new trap

Author: Roy Perrott

Since 2007, landlords who take a security deposit from an "assured shorthold" tenant (most short residential tenancies are assured shortholds) have had to protect the deposit. The landlord protects the deposit either by registering it with an insurance-based scheme or, alternatively, by lodging the deposit with a government approved custodian. The landlord must also serve "prescribed information" on the tenant. This is a pre-printed notice that sets out the terms of the deposit and explains to the tenant what its rights are if there is a dispute in relation to the deposit at the end of the tenancy. If the landlord fails to protect the deposit, or to serve the prescribed information on the tenant, within 30 days of the date on which the lease was granted, the landlord may have to return the deposit to the tenant and also faces a fine of up to three times the value of the deposit.

Assured shorthold tenancies (ASTs) are normally granted for a period of 12 months. At the end of the tenancy, the tenant frequently stays on. Sometimes the parties enter into a new AST but if the rent is not increasing, more often than not the tenant simply "holds over" without the parties entering into a formal new tenancy. The tenant is treated as a "statutory periodic tenant" and occupies on the same terms as the old tenancy.

Most landlords would not think to re-serve the prescribed information in these circumstances. After all, the tenant received that information only 12 months previously and nothing has really changed. The parties are the same; the amount of the deposit is the same; and it is still being held under the custodial or insurance-based scheme. Unfortunately, however, a recent court case has held that the landlord must re-serve the prescribed information on the tenant. The rationale for this is that the statutory periodic tenancy that the holding over creates is a new tenancy. If the landlord fails to re-serve the prescribed information, it faces the same penalties that it would have faced if it failed to protect the deposit or serve the prescribed information the first time around: return the deposit; and be liable to a fine of up to three times the value of the deposit.

Some cautious landlords and their agents may have been adopting this approach before now but many will not. The message is that, whenever an AST comes to an end, and the tenant stays on, the landlord must make sure that the prescribed information is re-served on the tenant within 30 days of the contractual tenancy coming to an end. It doesn’t matter if the tenant received this information the first time around, when the AST was granted. It needs to be served again. There are concerns for those tenancies where the tenant has been holding over for some time. Unhelpfully, the legislation does not seem to allow the landlord to ‘cure’ its failure to re-serve the prescribed information by serving it late. If more than 30 days have passed since the AST came to an end, therefore, the landlord is at risk of a disgruntled tenant applying to court for an order that the landlord return the deposit as well as an order that the landlord pay a fine of up to three times the value of the deposit.

Roy Perrott, Professional Support Lawyer, Fladgate LLP (rperrott@fladgate.com)

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