In a previous TDS article, we focused on the registration and service of tenancy deposit protection documents too early; this seems to be recurring enquiry that our customer team experience. It’s not just the Localism Act1 2011 that clarified the updated requirement of the TDP legalisation, but the Tenant Fees Act 2019 has seems to have set the hare running once again, in England particularly.
The Localism Act and the new TFA (2019) in England does not change what a tenancy deposit is with regards to assured shorthold tenancies, and therefore does not change what must be registered with a tenancy deposit protection scheme.
What is a deposit?
Any money taken for security in respect of a tenant’s obligations or liabilities connected with the tenancy is a tenancy deposit and must be protected with an authorised scheme.
A holding deposit is not a tenancy deposit for the purposes of section 212 of the Housing Act 2004 and does not need to be protected with an authorised scheme. Although the amounts and timeframes for retaining a holding deposit has been amended and can be enforced under the TFA from the 1 June 2019 what you call the sum of money is of relatively little importance – it is its purpose which you need to consider. A deposit is only required to be placed in a scheme for protection if it is paid as security for the performance of any obligations of the tenant or the discharge of any liability of his, arising under or in connection with the tenancy.
So, if the tenancy agreement has not been entered into, or there are no contractual obligations on the tenant, the deposit paid is not a deposit for the purposes of the Housing Act 2004. The Tenant Fees Act in England does restrict the amount that can be taken and how long it can be held. Timeframes can be extended by agreement, but your receipt should detail what has been taken and what it can be used for in what circumstances.
If a landlord has a holding deposit in respect of a person who subsequently becomes his tenant, the holding deposit must either be returned to the tenant and then repaid as a tenancy deposit, or be retained by the landlord and then protected within (30 days from being received / converted to be used in connection with the tenancy agreement, and prescribed information issued must also be served on the tenants and any relevant person within 30 days..
Retention of the money is likely to be the more practical option, and therefore it is advisable for agents to put a clause in their documentation defining what event transforms a holding deposit into a tenancy deposit and commits them to register the deposit and issue the prescribed information.
Serving the Prescribed information earlier than the 30 days would mean that the requirements of the Tenancy Deposit Protection legislation were not adhered to, so better to serve twice if being efficient rather than relying on an early serving. In addition, no section 21 notice can be served until the landlord has managed the tenancy deposit correctly.
If the landlord has not registered the deposit within 30 days, no section 21 notice can be served until either the deposit has been returned to the tenant or, if court proceedings have been taken against the landlord, proceedings have concluded. The penalty which a court can award is between one and three times the amount of the deposit and it is worth noting that if the deposit is protected outside of the 30 day limit, the court will take this into consideration when deciding this amount.
A more detailed guide to the changes made by the Tenant Fees Act 2019 in England can be found here www.Depositcap.com