Since 6 April 2007, it has been mandatory for a landlord to join a Tenancy Deposit Scheme on creation of a new residential assured shorthold tenancy in England or Wales, where a deposit is paid by the tenant to the landlord on commencement of tenancy. This requirement is imposed by section 213(1) of the Housing Act 2004 .  Essentially, where a landlord receives a deposit it is required under the Act to ensure that the deposit is protected and having protected that deposit a landlord is required to comply with the "initial requirements" of the particular scheme and must provide "prescribed information" to the tenant within 14 days of the date on which the deposit is received. The consequences of failure to comply with these requirements is that a tenant may apply to the court for the return of their deposit and for a penalty sum of three times the amount of the deposit. Furthermore, a landlord's claim for possession on the grounds of rent arrears or pursuant to Section 21 may fail if a landlord has not protected the deposit.

The case of Tiensia v Vision Enterprises Limited (T/A Universal Estates ) [2010] EWCA Civ 1224 resolves one significant question in favour of landlords. It confirms that the time for compliance with the initial requirements and the provision of the prescribed information is the date of the hearing of any application made by the tenant.   The consequences are that a landlord can comply with these requirements retrospectively and therefore avoid the penalty. However, if the claim has been brought by the landlord for possession pursuant to section 21 and the deposit has not been placed in a tenancy deposit scheme, a new section 21 notice may need to be served before the court hearing.   

In the case of Draycott v Hannells Letting Limited [2010] EWGC 217 the court stated that where the deposit is  received and held by letting agents, the three times penalty can be imposed on the person responsible for the failure to protect the deposit, where that is the landlord or an agent. It is therefore important that an agent's obligations in relation to the deposit are made clear in any agreement between the agent and the landlord.  

Although these decisions are generally helpful to landlords, nonetheless landlords would be well advised to comply with all of the requirements of the Housing Act 2004 in a timely manner. 

If you require any further information regarding this article, please do not hesitate to contact Alexandra Thomson or Jim McKeever.