The importance of getting deposits right

Statutory regulation of tenancy deposits was introduced in April 2007 under the Housing Act 2004 (“the Act”). s.213 of the Act placed an obligation on landlords to pay their tenant’s deposits into an authorised scheme.

But what about those deposits which were paid by tenants before April 2007?

In this recent case [Michalis Charalambous (1) & Katerina Karali (2) V (1) Maureen Rosairie Ng (1) Kok Ho Ng (2) (2014)], the tenant paid a deposit in 2002 after taking a one year tenancy. The tenancy was renewed twice and when the last tenancy ended in 2005, a periodic tenancy arose under the 1988 Act. The landlord did not pay the tenant’s deposit into an authorised scheme at any stage. In 2012, the landlord served a Section 21 Notice on the tenant.

The Court of Appeal held that the landlord’s Section 21 Notice was invalid because the tenant’s deposit had not been paid into an authorised scheme as required by the Act, regardless of the fact that when the deposit was paid in 2002, there was then no requirement to pay it into a scheme.

It was held that s.215(1)(a) of the Act, which prevents a landlord from serving a notice under s.21 of the 1988 Act whilst a deposit is unprotected, applied.

The lesson to learn is that the landlord could have served a valid Section 21 Notice by either paying the deposit into an authorised scheme, or by repaying the deposit to the tenant.

In view of this recent decision, landlords must audit older tenancies to carefully consider how they are managing their tenant’s deposits.  If not paid into an authorised scheme, do so now.  Otherwise your hands will be tied if you need to seek possession.

For more information on deposits and authorised schemes generally, please contact any member of our housing litigation team via 0121 212 7400.

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