Increased obligations on shorthold landlords to protect deposits

Date Added 28.07.14

A deposit paid by a tenant to a landlord under an assured shorthold tenancy agreement must be protected under one of three official deposit protection schemes. The schemes are designed to stop landlords from unfairly keeping deposits at the end of a tenancy.

The landlord must also give a notice to the tenant setting out certain information, including the tenant’s rights under the relevant scheme. There are substantial penalties for failing to protect a deposit or give the notice, including restrictions on the landlord’s power to recover possession of the property, and penalty payments.

If a shorthold tenancy ends and the tenant remains in occupation, it automatically converts into a ‘periodic’ tenancy on substantially the same terms as the previous shorthold tenancy. The rules protecting deposits also apply to such tenancies.

A tenant entered into a six-month assured shorthold tenancy agreement and paid a deposit. The landlord protected the deposit under an approved scheme and tried to comply with the notice requirements several times.

The shorthold tenancy ended and the tenant remained in occupation, therefore the tenancy automatically converted to a periodic tenancy. The landlord tried to recover possession of the premises by giving notice under the relevant housing law. However, the tenant argued that the notice was invalid because the landlord had not complied with the deposit rules on creation of the new, periodic tenancy. She said that the deposit already paid to the landlord under the old tenancy should, on conversion of the tenancy into a periodic tenancy, have been treated as a new deposit and the landlord should have complied with the notice requirements all over again.

The landlord argued that as the deposit was deemed to ‘roll over’ into the new tenancy, its compliance with the notice requirements at the beginning of the shorthold tenancy should also be treated as having ‘rolled over’ into the new tenancy.

The County Court found in the tenant’s favour, ruling that when a new periodic tenancy was created at the end of an assured shorthold tenancy, the landlord should re-serve the relevant notice on the tenant at that point – or risk penalties. As the landlord had not done so it could not recover possession of the property. It also had to pay a penalty of twice the amount of the deposit.

Proposed changes to the law would remove the requirement to comply with the deposit rules again when a shorthold tenancy converts in this way, but there is no timeframe for new legislation or, indeed, any certainty the proposals will become law. Landlords must therefore comply with this ruling for the foreseeable future.

Recommendation

Landlords should ensure they pay or protect deposits under one of the three deposit protection schemes where the deposit was paid to them under an assured shorthold tenancy, but where the tenancy has expired and has converted to a periodic tenancy. It should therefore serve the appropriate notice, or risk having to pay the penalties.

Case ref: Gardner v McCusker 3BM70525, Birmingham County Court

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