Deregulation Act: Regularising Tenancy Deposit Rules

21st May 2015

A recent decision of the Court of Appeal has been codified in the Deregulation Act 2015 to clarify that residential landlords must protect tenants’ deposits and provide tenants with prescribed information, regardless of when the tenancy commenced and when the deposit was received.

Tenancy Deposit Protection

The Housing Act 2004 (the Act), which came into force on 6 April 2007, provides that, where a tenancy deposit is received, a landlord must protect the deposit in a government authorised scheme and serve upon the tenant(s) specific information relating to the deposit. If the landlord fails to fulfil either of these obligations, the court has the power to impose a financial penalty and, often of even greater concern, the landlord is prevented from serving a valid notice pursuant to section 21 of the Housing Act 1988 to obtain possession of the property.

In Charalambous v Ng [1] the landlord and tenant entered into an assured shorthold tenancy, and a deposit was paid, in 2002; the tenancy then became periodic in 2005; all well before the relevant provisions in the Act came into effect. The court considered the effect of section 215 of the Act, part of which states that a section 21 notice is invalid if the deposit is not protected in a government-approved scheme at the time when the notice is served. The landlord argued that the whole of section 215 is linked to the landlord’s obligation to protect the deposit upon receipt and that it was under no such obligation when the deposit was last notionally paid in 2005, as the deposit protection regulations were not then in force. The landlord therefore sought to establish that section 215 did not apply. The Court of Appeal rejected that argument and held that the relevant requirements of section 215 were unrelated to any other obligation.

Court of Appeal Clarity

The ruling in Charalambous reiterated that, regardless of the date of receipt of a deposit or commencement of any subsequent statutory periodic tenancy, a landlord must ensure that the deposit is protected in a government-approved scheme before the tenant is served with a section 21 notice. The argument that there are situations when this is not the case was entirely rejected by the Court. Put simply, if a deposit is unprotected when a section 21 notice is served, the notice will be invalid.

Parliament has acted quickly to clarify the legislation. The Deregulation Act 2015, (the relevant provisions of which came into force on 26 March 2015), replaced section 215 (1) of the Act with new wording to reflect the Charalambous judgment. Landlords who have not protected a tenant’s deposit will be prevented from serving a valid section 21 notice regardless of whether the deposit was paid before, on or after 6 April 2007. Additionally, the provision that a landlord must have protected the deposit and served the prescribed information within 30 days of receipt in order to serve a valid section 21 notice will only apply to tenancies where the deposit was received on or after 6 April 2007. Landlords in the Charalambous situation are now able to serve a valid section 21 notice by protecting the deposit late and giving the prescribed information to the tenant.

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[1] [2014] EWCA Civ 1604