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Landlords Win Deposit Case

22nd August, 2011

Provisions introduced on 6 April 2007 under the Housing Act 2004 made it a requirement that landlords protect their tenants’ deposits using an authorised Tenancy Deposit Scheme, if they have let the property on an assured shorthold tenancy. The rules require the landlord to notify the tenant within 14 days that this has been done. The Act set up a system of penalties for landlords that fail to meet this obligation.

Recently, however, the Court of Appeal has issued a ruling which will please landlords and dismay tenants. It involved a tenant who took legal action against his landlord because the landlord failed to lodge the tenant’s deposit with one of the authorised schemes.

By the time the action had been brought, the landlord had put the position right. The question before the court, therefore, was whether the tenant could bring an action given that the failure which led to the action had been rectified.

The court concluded, by a two to one majority, that the tenant could not. Where a landlord is late in taking steps to protect the deposit and in notifying the tenant within the 14-day time limit that this has been done, but does so before proceedings are brought by the tenant, the tenant has no cause of action against the landlord.

In practice, this means that a landlord who fails to comply with the law in this respect can do so with impunity up until the point at which proceedings are brought by the tenant. However, landlords tempted to use this ruling to avoid compliance should remember that they cannot obtain possession of the premises unless they have complied with their obligations under the Act.

Please contact Simon Ellis for any further information related to this article or any other commercial property issue at [email protected]

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