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Keep those deposits protected!

26 Jun 2014

The unreported county court case of Gardner v McCusker (3BM70525) is a timely reminder to residential landlords of the need to comply with the strict rules of the tenancy deposit legislation or risk being severely prejudiced.

In Gardner a fixed term Assured Shorthold Tenancy ("AST") of 6 months was entered into in November 2009 and a deposit of £600 was protected by the landlord in an appropriate Tenancy Deposit Scheme in January 2010. The fixed term tenancy duly expired in May 2010 and a statutory periodic tenancy immediately then arose by virtue of the Housing Act 1988.

When the landlord attempted to serve a section 21 Notice in March 2013 to obtain possession, it was unable to do so as the tenant claimed the landlord was prevented from utilising this route as it was in breach of the deposit requirements in the Housing Act 2004 (the "Act") for failing to provide the prescribed tenancy deposit information.

The tenant's position in Gardner, which the Court agreed with, was that the new statutory tenancy that arose at the end of the fixed term AST in May 2010 required the payment of a deposit. It was agreed that this deposit had been paid by the tenant in connection with the original fixed term AST and had effectively been "rolled over" in May 2010 to the new statutory tenancy.

However, the tenant argued that the "receipt" of that deposit in May 2010 once again triggered the landlord's deposit obligations in the Act, including the need to serve the tenant with the prescribed information as detailed in the Housing (Tenancy Deposits) (Prescribed Information) Order 2007. The landlord had not done so and as a result, when the landlord attempted to regain possession by serving the section 21 Notice in March 2013, it was held by the court to be invalid. To add insult to injury the tenant was also awarded damages equivalent to double the value of the deposit (together with the return of the deposit sum) in accordance with the statutory damages remedy as set out under the Act.

All in all this result was an extremely expensive lesson for the landlord for what amounted to little more than failing to re-serve the prescribed information, which the tenant had of course received some 6 months previously. However, the law is clear as it currently stands, although that will no doubt be of little cheer to those landlord's with large tenant portfolios whose administrative burden has now increased considerably.

We understand that a proposal to reform the rules governing registration of residential tenancy deposits is currently in a draft parliamentary bill, which will remove the need for landlords to re-serve in this way, but in the meantime landlords must diarise termination dates to ensure that they can utilise the section 21 possession procedure to obtain possession and also avoid facing a sizeable damages claims.

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