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Tenant Deposits and Landlords new responsibilities

A large number of individuals are now landlords, be that as a result of an investment strategy or because in the current economic climate they have been unable to sell a property that they wish to move out of.

New legislation came into effect on 6th April 2012 regarding the holding of tenant deposits and the landlord’s responsibilities for those funds. Following on from earlier legislation, the Localism Act 2011 has strengthened the previous deposit holding regulations to require a landlord to place the tenants deposit into a recognised scheme within 30 days. Also they must confirm to the tenant within the same timescale that the deposit has been protected.

Failure to place the deposit into a recognised scheme on time can result in:

  • the landlord being required to pay a penalty to the tenant of up to three times the deposit – a court would make the decision about the exact amount depending upon individual circumstances
  • the landlord will lose the right of any defence against the above penalty because he has not complied with the legislation
  • the tenant gains the right to launch a penalty claim against the landlord even after they have vacated the property
  • the landlord also loses the right to issue a Section 21 ‘Notice to quit’ to the tenant

The final point is especially concerning to a landlord, as the only way to rectify the situation in the event that they wished to evict the tenant would be to return the deposit in full to the tenant and then a Section 21 notice could be served. But the prospect of paying deposit monies to a tenant that may owe rent is not an appealing one!
These provisions apply to Assured Short-hold tenancies that end on or after 6th April 2012. These are tenancies that have been agreed for a fixed period of time.

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