Protection of Rent Deposits received from Residential Tenants

Buy-to-let Landlords will be aware that Deposits received from Assured Shorthold Tenants must be protected in an approved Tenancy Deposit Scheme within 30 days. The aim is to ensure that deposits are kept safe and that Landlords act properly in making deductions.

If a Landlord fails to protect a Deposit there are various consequences, a critical one being that the Landlord is unable to serve a valid Section 21 notice to obtain possession of the property. There are also financial penalties.

The requirement to protect Deposits applies to:

• Deposits received since April 2007

• Deposits received before April 2007 and retained because either:

o a new tenancy was granted in or after April 2007 or

o the original tenancy became periodic (i.e. the fixed term expired and the tenancy continued on a month by month basis) in or after April 2007.

Failure to protect a Deposit in these circumstances attracts a financial penalty, as well as rendering the Landlord unable to serve a valid Section 21 notice.

In December 2014 the courts confirmed that there is a further situation in which Deposits must be protected:

• Deposits received before April 2007 in respect of a tenancy that became periodic before April 2007.

In the case of Charalambous v Ng the court held that the Landlord was unable to serve a valid Section 21 notice because the Deposit had not been protected. (No financial penalty applies in this case.)

Landlords in this (admittedly rare) situation should either protect the Deposit before serving a Section 21 notice or return the Deposit to the tenant.

We have updated our Guidance on Tenancy Deposit Protection for Assured Shorthold Tenants and our Guidance on Section 8 and Section 21 Notices to reflect the new law.