Landlord deposit scheme advice – How to avoid getting caught out!

It has long been the case that Landlords of residential properties have stringent rules to follow in the form of the Landlord deposit scheme. Previously, it was thought that some of these rules have not applied to new Landlords of properties which they have purchased with tenants in situ, but a recent ruling has challenged that premise. To help our clients understand what this might mean for how the deposit schemes could factor into future disputes, we’ve summarised the developments below.

Landlord deposit scheme rules

Under current rules, failure to properly deal with a deposit taken at the commencement of a tenancy:

  • Leaves the Landlord open to a claim from their tenant for return of the deposit plus compensation of up to 3 times the amount of it.
  • Potentially prevents the Landlord from serving a Section 21 Notice to recover possession of the property.

To comply with the rules, at the commencement of a tenancy the Landlord must:

  1. Pay the deposit into a Government-Backed Tenancy Deposit Scheme
  2. Provide the Tenant with a Prescribed Information document relating to the scheme

Both of these actions must be done within 30 days of the Landlord having received the deposit.

Landlord deposit scheme rules include an exemption from the requirement to re-protect a deposit (and reserve the Prescribed Information document) when replacement Tenancy is granted, as long as they kept to the deposit protection requirements at the commencement of the Tenancy. However, in certain circumstances, that exemption may not apply.

Landlord deposit scheme advice - How to avoid getting caught out!

Sebastiampillai v Parr

Following a ruling in the case of Sebastiampillai v Parr [2019], it appears that in cases where a new Landlord purchases a property with a sitting Tenant, there is a requirement for the new Landlord to serve the existing Tenant with the Prescribed Information document again.

In the mentioned case, the tenancy deposit was paid to the “old” Landlord in 2007 – who correctly protected it and served the relevant Prescribed Information document. They had no obligation to re-protect it and/or serve further Prescribed Information documents when new, replacement, Tenancy Agreements were entered into with the Tenant.

The Claimant in the case was the “new” Landlord, who purchased the property in September 2014 – and upon completion of the purchase, received the tenancy deposit from the old Landlord. The Court ruled that the new Landlord received the deposit in September 2014, and as a result should have paid it into a Tenancy Deposit Scheme and provided the Tenant with the Prescribed Information document within 30 days of that date. Failure to do so meant that the new Landlord could not serve a valid Section 21 Notice, and the claim for possession of the property therefore failed.

This case demonstrates the importance of legal expertise in ensuring compliance with a complex and ever-changing set of rules. Landlords can understandably find it difficult to keep up with what the law requires, but failing to do so is often the deciding factor in disputes.

Expert legal advice for Landlords

It is important for investors and purchasers of properties, who buy a property subject to an ongoing Tenancy, that they ensure that they comply with rules surrounding the tenancy deposit once their purchase is complete.

If you need advice about the Landlord deposit scheme, or any other kind of legal assistance in Landlord & Tenant Law, our experts are ready and waiting for your call; do not hesitate to contact us today.

Or contact our Dispute Resolution & Litigation team directly using the form below

Want more Landlord advice?

We also have a video outlining our services for landlords, giving you all the essential advice on Section 21 eviction and the common pitfalls on the profession. Watch our video here.

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