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Tenancy Deposit Protection - statutory information requirements

Introduction:

In the first Factsheet of this series on tenancy deposits (Factsheet No. 24) we provided an overview of the legal requirements for tenancy deposit protection under the Housing Act 2004. In summary, the provisions require that any form of tenancy deposit, or similar money that is taken at the beginning of an assured shorthold tenancy (AST) on or after 6th April 2007 (or subsequent renewals of tenancies agreed prior to that date) will be subject to the Government’s Tenancy Deposit Protection (TDP) scheme, whether it is called a ‘deposit’ or not.

For tenancies where such deposits are accepted by either landlord or agent, the following provisions will apply:

  • The deposit will be required to be protected within one of three statutory schemes
  • Landlords and agents will be required to operate strictly according to the scheme rules as interpreted by the courts (see below)
  • Tenants and others shall be furnished with prescribed information within 14 days of accepting the deposit

Infringement of any of these three requirements may lead to onerous penalties on the landlord. These sanctions operate under ss. 214 & 215 of the Act and were detailed in Factsheet No.24. In summary these are:

  • That the landlord is prevented from regaining possession of his property under section 21 of the Housing Act 1988 (the most common and straightforward mechanism for legally evicting a tenant)
  • That the landlord can be taken to court by the tenant, and the court is required to award compensation to the tenant comprising THREE times the amount of the deposit.

The original interpretation of these provisions was subject to widely differing interpretations in actions taken in the County Court, see LUJ Jan 2009 p30, April 2009 p25 & Jan 2010 p29. The Court of Appeal has now (Nov. 2010) given clear directions on the issue which will be considered in detail below.

Statutory Information Requirements for TDP:

One of the key aspects of the TDP legislation is that the landlord or ‘person accepting the deposit’ shall furnish the tenant with certain prescribed information within 14 days of receiving the deposit. This information must be provided. Failure to provide the information may mean that severe penalties could apply to the tenancy. The general requirement to supply information is contained within section 213 of the Housing Act 2004 and detailed further within the Housing (Tenancy Deposits)(Prescribed Information) Order 2007 (SI 2007, No.797). This Statutory Instrument is available on the Office of Public Sector Information (OPSI) website at www.opsi.gov.uk. The Statutory Instrument requires that the landlord or agent provides certain information to the tenant(s) and any other relevant persons. This information shall:

1. Identify the deposit which has been paid, the address of the property to which the tenancy relates and

2. Provide the name address, telephone number and any e-mail address or fax number of the landlord(s), the tenant(s) and any other ‘relevant person’ to the deposit (i.e. a person who contributes towards, or pays the deposit on behalf of the tenant);

3. Define the circumstances when all or part of the deposit shall be retained by the landlord by reference to the terms of the tenancy;

4. Provide confirmation (in the form of a certificate signed by the landlord) that the information provided is correct, and that the tenant has been given the opportunity to sign any document containing this information;

5. Include details of the tenancy deposit scheme being used for protecting the tenancy deposit. These details should include information which explains the operation of tenancy deposit protection under the Housing Act 2004, and various procedures that will apply to repaying, the money, contacting the parties, and resolving any dispute that may result in relation to repayment of the deposit. (SI 797, Article 2, paras(1)a to (1)f). 

(This is only a summary, see the Statutory Instrument for the full detailed list of requirements. References above to the landlord will be deemed to also refer to an agent acting for the landlord – see Housing Act 2004, s.212(9)).

Compliance:

There are two main ways to ensure compliance with the tenancy deposit information requirements:

  • By supplying the tenant and any relevant person with a Deposit Information Certificate
  • By incorporating the prescribed information within the tenancy agreement

Deposit Information Certificate:

Landlords and agents can comply with the TDP information requirements by ensuring that the tenant(s) and relevant person(s) are provided with a signed Deposit Information Certificate accompanied by information supplied by the relevant deposit scheme provider. A ‘relevant person’ means “any person who, in accordance with arrangements made with the tenant, paid the deposit on behalf of the tenant”. A ‘relevant person’ could therefore be a parent, or a relative or guarantor – in fact anybody from whom money has been received that contributes to the deposit.

The information must be given to the tenant(s) and relevant person(s) within fourteen days of accepting the deposit. The certificate should contain the information listed under ‘Statutory Information Requirements’ – see above.

Information items 1 to 4 can be supplied by the landlord or agent using a standard form

Information item 5 (scheme details) will need to be obtained from the deposit scheme provider. Different scheme providers have adopted different methods to do this. On receipt of the deposit, the Deposit Protection Service will contact the tenant and landlord/letting agent to confirm that the deposit has been protected. The tenant will also be issued with a unique repayment ID number. This is five digits long and will be needed to request repayment of the deposit at the end of the tenancy. The landlord is then expected to provide the rest of the information in the form of a signed notice.

This information certificate would normally be presented and signed at the same time as signing the tenancy agreement, but in whatever other circumstances may arise, the legislation requires that the certificate is signed by the landlord and, if possible, the tenant and issued within 14 days of acceptance of the deposit, with a copy given to each tenant and relevant person, and a copy of the signed certificate(s) retained by the landlord or agent. As indicated by the Court of Appeal decision referred to below, failure may be remedied at a later date.

An example form is provided on The Letting Centre’s website (www.letlink.co.uk) – see section ‘Letting Library’ - Forms

Prescribed Information within the Tenancy Agreement:

An alternative approach to compliance with the information requirements is that the landlord incorporates the prescribed information within the tenancy agreement.

This is the approach adopted by The Dispute Service (TDS). The drawback to this method is that it results in a legal document that is lengthy and in a format that is not easy to digest. The TDS scheme, for example, prescribes eight pages of additional clauses which must be incorporated within the tenancy agreement. To adopt a similar format with the information provided by the Deposit Protection Service (DPS), it will be necessary to summarise the relevant terms of the DPS scheme – or append a copy of the full DPS Terms and Conditions document (which adds a further 6 detailed pages of small print, or 26 pages of normal-sized print to the tenancy agreement!).

Because the TDS scheme rules require that the tenancy agreement is amended to contain supplied extra clauses, agents and landlords operating under this scheme will have no choice but to amend their agreement accordingly.

For landlords or agents operating tenancies under more than one scheme, this approach also means that different versions of the same tenancy agreement will need to be prepared and maintained for each tenancy deposit scheme.

Common sense would suggest that a properly authorised agent can sign on behalf of his landlord client but the legislation is less than clear on this point.

Evidence:

The landlord or agent needs to be able to verify that the tenant and relevant persons have been issued with the statutory information – for example when bringing a possession action (under section 21 of the Housing Act 1988).

The landlord cannot rely on simply giving a signed copy of the information certificate to the tenant – the tenant may forget or even deny that he has ever received the statutory TDP information. So it is important that the landlord or agent retains a copy of the signed Deposit Information Certificate, (or the signed tenancy agreement containing similar information) for his files.

Joint Tenants:

Where a tenancy has joint tenants, then good practice suggests that each tenant should be given a copy of the prescribed information – either in the form of the Deposit Information Certificate, or as a copy of the tenancy agreement.

For evidence purposes, each tenant should be asked to sign the Deposit Information Certificate to verify that the information has been supplied as required under the legislation.

Deposit Protection Service (DPS):

Under the DPS custodial deposit scheme the deposit is paid to, and held by, the scheme provider during the tenancy.

At the time of writing, there are some deficiencies with regard to the prescribed information aspects of this scheme:

  • Only part of the prescribed information will be provided by the DPS.
  • It will be difficult for the landlord to prove that this prescribed information has been supplied by DPS
  • The landlord or agent will be required to supply further prescribed information in order to comply with the full legal requirements for Tenancy Deposit Protection – in the form of a Deposit Information Certificate provided to each tenant and any relevant person(s).

Under the DPS scheme, there will normally be a delay between the time the DPS receives the deposit, and the issue of the DPS email or paperwork to the tenant. Best practice suggests that the Deposit Information Certificate should be issued and signed by the landlord and tenant immediately on receipt of the tenancy deposit. Whilst this method is safer, and ensures that both the landlord’s and the tenant’s signature is secured on the documentation, it also requires that the landlord prepares copies of the tenancy deposit scheme information (see Document ‘DPS Terms and Conditions’ available on their website) to hand to the tenant(s) to satisfy the information requirement under paras 2(a) to 2(f) of the legislation.

The Dispute Service (TDS):

The form and content of the prescribed information (provided within the extra TDS clauses) raises doubts as to whether it is compliant with the TDP information requirements. For example, the Prescribed Information Order requires that the prescribed information includes the name, address, telephone number and any email address (or fax number) of the tenant. In the case of joint tenancies, our view is that; where the ‘tenant’ comprises several people who have all contributed to the tenancy deposit, the names and contact details for all tenants should be included within the prescribed information. This suggests that a Deposit Information Certificate needs to be completed for, signed by, and given to all joint tenants and all relevant persons to be on the safe side.

My Deposits (formerly TDSL):

My Deposits makes no specific requirements for special clauses to be added to the tenancy agreement but will issue the landlord/agent with a Deposit Protection Certificate, no timescale specified, but landlords and their agents remain liable to provide each tenant and any relevant persons with the required information within 14 days either using the My Deposits Certificate or other means. My Deposits has provided scheme members with a short explanatory leaflet which helps to explain the provisions within the Housing Act 2004, the operation of procedures under the scheme in respect of repayments from the deposit, and the handling of disputes. This leaflet is also downloadable from their website (www.mydeposits.co.uk). Scheme members should verify with the scheme provider whether this leaflet constitutes compliance with the prescribed information requirements.

Scheme Rules:

The requirements of Section 213 of the Housing Act 2004 also state that, where a deposit is received in accordance with an authorised scheme, then ‘the initial requirements of an authorised scheme must be complied with by the landlord within a period of 14 days beginning with the date on which it is received’. Non-adherence to the scheme rules can, in some situations, also result in a tenancy failing to comply with the law, and attracting the sanctions provided under sections 214 and 215 (described above). Particular care should be taken under the TDS scheme, as the scheme rules are prescriptive about the form and content of the special clauses that the scheme requires the landlord or agent to add to the tenancy agreement.

Whichever scheme is being used, landlords are advised to study the rules or terms of each scheme carefully.

Court of Appeal decision:

As indicated above, the County Courts’ interpretation of these information requirements differed widely but the matter was clarified by a Court of Appeal Judgement in November 2010 in the cases of Tiensia v Universal Estates & Honeysuckle Properties v Fletcher. The text of the judgements can be found at [2010] EWCA Civ 1224 & in Letting Update Journal, Jan 2011 p11.

The facts in these conjoined cases were very similar. Tenancies had been created and deposits taken after April 2007 and in neither case were the deposits protected within 14 days. In both cases the landlords sought possession of their properties using a section 8 notice for rent arrears. The tenants counterclaimed using section 214 Housing Act 2004 that the landlords had failed to comply with the requirements of section 213 of the same Act in not protecting the deposit or providing the required information within 14 days as required by the Act. In both cases at the initial hearing the three times the deposit sanction set out in the Act was applied to the landlord but this was overturned at the first appeal.

The Court of Appeal decided by a majority of two to one that a landlord had until the hearing of a case to force him to comply with the deposit requirements of the Act. Only if he had not complied by then would the penalties set out in the Act apply. In the words of one of the judges “to sanction compliance at any time up to the moment of judgment is to eviscerate the legislative scheme”, but this is what they have done. The following quotation from Lord Justice Rimmer explains the majority view-

“That interpretation of the legislation means that late, but nevertheless due, compliance by the landlord with his dual obligations under section 213(3) and (6) will furnish him with a complete defence to any claim by the tenant under section 214. Such interpretation appears to me to be not only firmly supported by what I would regard as the carefully chosen statutory language, it is also a properly precise, or strict, one to apply to legislation such as section 214 that is manifestly penal in intent. Moreover, it is an interpretation that is consistent with the purpose of the legislation. That purpose is to achieve the due protection of deposits paid by tenants, ideally within the 14-day period but, if not, then later. It cannot be its purpose to punish landlords who may for example, for innocent reasons, be just a day late in securing such protection.”

Lord Justice Rimmer’s judgement in this case posited two possible interpretations of the time requirements. Firstly that, where a deposit was not protected or the information provided within 14 days, the penalty applied, and this could not be remedied by late protection or provision of required information and the second, and the approach taken by the majority of the court, was that the purpose of the Act was to protect deposits and therefore, provided that the deposit was protected before the date of any hearing, either as in these cases as a counterclaim on a possession action or in a deposit protection action under s214, then the 3 x deposit penalty could not apply.

Consequences for enforcement of the deposit requirements:

To quote one commentator ‘this drives a coach and horses through the deposit protection scheme’. Whilst most responsible agents and landlords will continue to protect deposits through one of the three schemes, there is little to prevent those who do not wish to do so from ignoring it altogether until pushed into action by the courts and even then they would suffer no penalty. It may be that the Government may decide, in any review of the operation of the Deposit Protection Scheme as a whole, to amend the rules to support enforcement but, until that happens the scheme at present lacks teeth.

Sources for Further Information:

 

This summary is intended to assist landlords and letting agents to understand the effect of the law.  It is not an authoritative interpretation - this is a matter for the courts.  For more detail, you should refer to the text of the case law itself.