Tenancy deposit schemes
By Daniel Dovar and Michael Walsh, barristers at Tanfield Chambers
The tenancy deposit schemes came into force on 6 April 2007. The idea of the schemes is to safeguard tenancy deposits and to provide ADR methods of resolving disputes in relation to deposits. From that date it has been necessary for every deposit taken by a landlord in respect of an assured shorthold tenancy to be protected by a tenancy deposit scheme. If it is not it will not be possible to serve a s21 notice and thus obtain possession (Housing Act 2004, s215).
See also para 7B(d) of the revised form N5B (Accelerated procedure claim form) which states:
"If your claim for possession is in relation to an Assured Shorthold Tenancy where a deposit was taken after 6 April 2007, you must provide evidence that such deposit is safeguarded with a tenancy deposit scheme (TDS) authorised under Part 6 of the Housing Act 2004".The scheme applies to any deposit taken in relation to a new assured shorthold tenancy granted on or after 6 April 2007. It is not applicable to continuation tenancies, ie where the tenant stays in occupation as a statutory periodic tenant (Housing Act 1988 (HA 1988), s 5)).
Within 14 days of accepting a deposit the landlord must enter it into a government designated tenancy deposit scheme and provide the tenant with prescribed information.
A "deposit" is defined in s213(8) as "a transfer of property intended to be held (by the landlord or otherwise) as security for (a) the performance of any obligations of the tenant, or (b) the discharge of any liability of his, arising under or in connection with the tenancy".
"No person may, in connection with a shorthold tenancy, require a deposit which consists of property other than money" (s213(7)). If any such non-monetary deposit is taken "no s21 notice may be given in relation to the tenancy until such time as the property in question is returned to the person by whom it was given as a deposit" (s215(3)).
One effect of Section 213(7) is that the tenant is precluded from giving a credit card impression or writing a cheque that is not banked.
The landlord also needs to provide the tenant with prescribed information such as the name and address of the administrator, procedures to be followed if a dispute arises etc (HA 2004, s 213 and para 2 of the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 (SI 2007/797)).
If that information is not given once again a s21 notice may not be given until the information is given (s215(2)).
Presently, there is one custodial scheme and two insurance backed schemes.
The Deposit Protection Service ( www.depositprotection.com) is the only custodial scheme which is free to join for landlords, but the actual deposit must be paid over to the scheme. The obvious disadvantage here is that the landlord loses control over the deposit monies.
The Dispute Service (www.thedisputeservice.co.uk) and Tenancy Deposit Solutions (www.mydeposits.co.uk) are insurance backed schemes, whereby the landlord registers the particular deposit with the service but does not have to hand over the deposit. There is a fee for these schemes.
As stated in the introduction, for so long as the requirements are not complied with a landlord will not be able to serve a notice pursuant to HA 1988, s 21 (HA 2004, s 215). Essentially the new defence available to tenants against landlords who do not comply with the scheme is merely a delaying measure. The landlord can then ensure he complies with the scheme and re-serve a s 21 notice, which will then be entirely valid.
If a tenant is concerned that his deposit is not protected by a scheme and/or he has not been provided with the prescribed information and/or the scheme administrator does not confirm that their deposit is protected then he can commence proceedings against the landlord under HA 2004, s 214. If the court finds that the landlord is in breach then it must order up to three times the amount of the deposit to be paid to the tenant within 14 days (s 214(4)) as well as ordering the deposit to be paid either into the custodial scheme or to the tenant (s 213(3)).
In Draycott v Hannells Letting Limited  EWHC 217 (QB) it was held that a letting agent who has taken a deposit in respect of an assured shorthold tenancy can be liable to pay a penalty if he has failed to protect the deposit in accordance with the initial requirements of the appropriate scheme.
In Tiensia v Vision Enterprises Limited  EWCA Civ 1224 it was held that a landlord who fails to protect a deposit within 14 days of receipt will still be able to avoid the sanctions imposed by the Housing Act 2004 if he protects it prior to the hearing of the tenant's claim. This case decides that:
- If the landlord has protected the deposit and provided the notice by the date of the hearing no sanction is applicable;
- If the landlord has protected the deposit and provided the notice before serving a s21 notice, that notice will be valid; and
- If the landlord remedied the situation after the claim had been made but before the hearing "the tenant will ordinarily recover his costs. He may not recover his full costs, but there is nothing unusual about a claimant not doing so. The tenant will bring his claim knowing of that risk."(paragraph 44)
If the landlord and tenant cannot agree as to payment of the deposit at the end of the tenancy then the dispute can either be resolved through alternative dispute resolution (ADR) or through the courts.
Alternative dispute resolution
One of the requirements of HA 2004 was that the scheme providers must provide a dispute resolution service (HA 2004, Sch 10, para 10) and so each scheme has its own ADR process. All three schemes operate a similar adjudication process but reference should be made to the particular scheme for details of the procedure and to obtain the relevant forms. The timetable and requirements for each scheme are set out below:
The Deposit Protection Service (DPS)
1. Landlord and tenant complete, within 28 days of the end of the tenancy, a joint repayment form notifying the Deposit Protection Service (DPS) of a dispute and requesting referral to adjudication and agreeing to submit to the same.
2. On receipt of that form, DPS issues a landlord's evidence form, which must be completed and returned within 14 days. This must set out the basis of the dispute and attach all relevant documents, ie tenancy agreement, inventory, invoices, photographs etc.
3. DPS then provides to the tenant a summary of the landlord's evidence and a tenant's response form. The tenant must return their form within 14 days with supporting documents.
4. Failure by either party to provide the documents in time will result in DPS paying the deposit to the non-defaulting party.
5. The landlord then has a further seven days in which to accept or disagree with the tenant's evidence and may put in further evidence.
6. DPS will then forward the forms to the adjudicator who will make a decision within 28 days of receipt of the papers. In the meantime, the adjudicator may call for further information from the parties.
7. DPS will pay out according to the adjudicator's decision within 10 days.
Tenancy Deposit Solutions
1. A disgruntled tenant completes a dispute notification claim form and attaches any relevant evidence.
2. Tenancy Deposit Solutions notifies the landlord of the dispute and within 10 days the landlord must pay the deposit to them and submit a counter claim on a response form attaching any evidence and agree to submit to ADR. The landlord must also provide rebuttal evidence defined as: a signed copy of the tenancy agreement, original receipts for damaged or destroyed items and estimates, invoices or receipts for any repairs and rent account statement.
3. Failure to lodge the deposit will disqualify the landlord from using the ADR service and may result in their removal from the scheme entirely.
4. Tenancy Deposit Solutions will then pass the papers onto the adjudicator who will make a decision within 28 days and in the meantime may call for further information including oral evidence.
The Dispute Service
1. The parties are encouraged to raise the issues between themselves within 20 days of the end of the tenancy. They then have 10 days to resolve the matter. If that fails it should promptly be referred to the adjudicator.
2. Either party may instigate the dispute by submitting a notification of deposit dispute form to the adjudicator. If the landlord starts the dispute they must also lodge the deposit with The Dispute Service or within 10 days of notification that a tenant has sent in notification of a dispute.
3. Evidence in response should be submitted to the adjudicator within 10 days of notification of the dispute.
4. Failure to do so may result in disciplinary action and The Dispute Service will take
steps to recover the sum.
5. The adjudicator may at their own discretion pay the deposit to the tenant where
the landlord has:
(i) not paid their subscription;The courts
(ii) not paid in the deposit;
(iii) not provided a written tenancy agreement;
(iv) not provided sufficient information about The Dispute Service;
(v) not provided a check-in or out inventory;
(vi) unreasonably delayed the dispute.
If the parties do not agree to submit to adjudication or have missed any deadline for submission to adjudication, ie 28 days from the end of the tenancy for the DPS scheme, they must then litigate through the county court. Given that a tenancy will not be an assured shorthold tenancy if the rental is over £25,000 per annum and that the deposit is unlikely to be more than six weeks rent, a claim for a deposit alone will undoubtedly be allocated to the small claims track and proceed as a small claim. This is likely to take longer and require an oral hearing. Apart from an issue fee, the general rule is that costs are not awarded in small claims cases.
If the tenant gets a court determination in their favour then they can use that against the scheme administrator to obtain their deposit. Payment should be within 10 days of notification.
Making a claim
If the tenant decides that there is no other option but to take the landlord to court this can be done by issuing a claim in the normal way under Pt 7 of the Civil Procedure Rules (CPR) as a money claim using form N1 (available from www.hmcourts-service.gov.uk). It is also worth bearing in mind that claims can now be issued online at www.moneyclaim.gov.uk.
ADR or litigate?
The ADR schemes appear to be far better suited to deposit disputes than the courts. They are cheaper (free), quicker and the adjudicators presumably will be handling many similar disputes and will begin to build up experience of this particular type of claim.
As has already been highlighted, by issuing in the county court the parties will usually be committed to paying their own costs and if they instruct solicitors and/or counsel costs could easily surpass the value of the claim. Although one would expect a claim to be issued fairly soon after the end of a tenancy, using the courts has the advantage that the claimant has up to six years to bring the claim.
Where one party refuses to engage in any process or is untraceable then HA 2004 provides for the other party to be paid out on submission of a statutory declaration confirming that 14 days have passed since the end of the tenancy and the other party cannot be contacted and there is no known address.
Further information can also be obtained on the Communities and Local Government website: here
Daniel Dovar is a barrister at Tanfield Chambers and co-author with Gary Webber of Residential Possession Proceedings (8th Edition) published by Sweet & Maxwell.
Michael Walsh is also a barrister at Tanfield Chambers and a visiting academic tutor at King's College London.
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