Deposit Protection after the Deregulation Act
Last updated 27 Jan 2022 - signing the prescribed information if you are a limited company
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Deposit protection legislation is meant to be relatively simple and clear for landlords and tenants. The deposit should be protected within 30 days of receipt and the landlord should supply the tenant with all of the scheme's prescribed information within that same window. If they do not do this, then the tenant is entitled to chase the landlord for the penalties and cannot be evicted through a section 21 notice until the deposit is returned to the tenant.
Unfortunately for landlords, case law made a simple system confusing. Many landlords found themselves caught in situations where they thought they were complying with the law until a new case turned the legal position on its head. Most notably in Superstrike v Rodriguez and Charalambous v NG. These cases resulted in landlords having to comply with a deposit scheme that did not even exist when their tenancies began. Understandably, many landlords found this situation confusing and stressful.
The Deregulation Act 2015 thankfully clarified deposit protection for landlords and tenants and landlords can now act with confidence to protect their deposits. However, in England they must now be mindful of the changes that have come in due to the tenant fee ban.
This guide is intended to provide you with all the information you need to protect your current deposits correctly in England. It will discuss some key deposit terms, how the Deregulation Act and Tenant Fees Act have affected deposits, what types of schemes are available for you to choose, what to do if you have not protected your deposit correctly, and what sort of penalties may apply if you have not protected your deposit correctly.
What is a deposit?
A deposit is money taken by the landlord to cover any of the tenant's liabilities or obligations that arise from the assured shorthold tenancy. This cannot be taken in the form of property such as a rolex watch or a car.
If money is being held for this purpose then it is a deposit, regardless of what it is called in the tenancy agreement, and it needs to be protected in a scheme if it is an assured shorthold tenancy.
The deposit will count as being received by the landlord on every subsequent fixed term renewal or when the original tenancy turns into a statutory periodic tenancy.
Am I obligated to take a security deposit?
No, many landlords now choose to forgo a deposit, preferring instead to rely on the deposit alternatives such as Zero Deposits, rent insurance schemes, or simply taking no deposit at all.
However, as most tenancies presume you will take a deposit they will usually contain clauses referring to the deposit. To avoid any issues, landlords should make sure it is clear in their tenancy agreement that no deposit has been taken within the agreement.
How do I protect a deposit?
Once you, or your agent, have received any money that is to be used as a deposit, then you must protect it within one of the Government-approved schemes within 30 days. Note that this is within 30 days of receiving the deposit, not within 30 days of the tenancy commencing.
After you have protected the deposit in a scheme, but not before, you must provide to the tenant and anyone who has paid towards the deposit -
- the prescribed information
- the deposit certificate or receipt
- a copy of your chosen scheme's terms and conditions or scheme rules
The rest of this guide is available after registering for an account on the NRLA site. In it we discuss topics like -
- the difference between custodial and insurance-based schemes
- whether rent in advance is a deposit
- how often a deposit needs to be protected
- penalties for not protecting a deposit
- Superstrike Ltd v Rodriguez
- how long a landlord remains liable to pay a deposit penalty