All Change For Landlord As New Legislation Comes Into Force Concerning Tenants Deposits

New legislation comes into force which affects all shorthold tenancies (AST - the most common form of new tenancy) created after 6th April 2007 in England and Wales. It is intended to protect a tenant paying a deposit so that they get all or part of it back at the end of the tenancy.

The legislation applies from 6th April 2007 and affects all new ASTs created in England and Wales after that date.  The rules do not apply to ASTs created before 6th April 2007 and which are still in force at that date, although there are exceptions to this.  The Housing Act does not allow anything other than money to be used as a deposit and a landlord seeking to circumvent the regulations by taking an item other than money from the tenant may be in breach of the law.

There are three main bodies who have been authorised by the Government to set up and run the schemes and these schemes are either custodial (where the deposit is paid into a scheme) or insurance backed.  All three will offer a dispute resolution service, which will be free to use by both Landlords and Tenants.

If a deposit is not protected, the landlord will be breaking the law.  They will be unable to regain possession of the property using notice-only grounds for possession under Section 21 of the Housing Act 1988.  The tenant can apply for a court order requiring the deposit to be protected and if the court is satisfied that the landlord is failed to comply with the requirements, then the court can:

• Order the landlord to repay the deposit within 14 days of issuing the court order, or
• Order the landlord to pay the deposit into the designated account held by the custodial scheme administrator.

In addition, the court can order the landlord to pay to the tenant an amount equivalent to three times the deposit amount.

The legislation will apply only to new deposits taken on or after 6th April 2007.  Any deposit taken before this date will not need to be protected .  However, if a tenant remains un the existing rented property beyond the initial fixed term, treatment of the deposit will depend on how the tenancy is continued.

If the tenancy continues as a periodic tenancy, no new AST will have been created in which case the deposit will not need to be included in a tenancy deposit scheme.  If a new AST is created between the same landlord and tenant for the same property on substantially the same basis (ie. a 'replacement tenancy'), then the initial deposit that was paid prior to 6th April 2007 will need to be protected and the landlord will need to be protected and the landlord will need to safeguard it by joining a scheme.

Any landlord resident in the United Kingdom can apply to join one of the schemes and it is recommended that Landlords consider registering now.