Deposit Protection Compensation – What do I need to know?

What is deposit compensation?

Under the Housing Act 2004 (the “2004 Act“), from 6 April 2007 it became unlawful for a Landlord to accept a tenancy deposit in connection with an Assured Shorthold Tenancy (“AST”) without securing it in one of the Government approved deposit protection schemes. There are 3 Government approved deposit protection schemes.

To comply with the 2004 Act the deposit must be secured within 30 days of the deposit being received and certain information (the “prescribed information“) must also be sent to the tenant within 30 days of the deposit being received.

What happens if a deposit is not correctly protected?

If a Landlord fails to correctly secure the deposit within an approved scheme, they will be liable (a) to repay the full deposit, and also (b) to pay a financial penalty of between an additional 1 and 3 times the amount of the deposit. This can increase where there are multiple breaches, which can occur when an AST is renewed or falls into a periodic tenancy and the deposit remains unprotected.

A failure to correctly protect the deposit also means that a Landlord loses their ability to rely on Section 21 of the Housing Act 1988 (i.e., the no-fault ground for possession) until the breach has been remedied.

How can you remedy a failure to protect a deposit?

The only way for a Landlord to remedy their failure to correctly protect a deposit is to return the deposit to their tenant. Once the deposit has been returned a Landlord can rely once again rely on the no-fault ground for possession. However, the deposit being returned does not mean that a Landlord is absolved of their liability to pay a financial penalty to their Tenant.

For Landlords, if you become aware that you have failed to comply with the requirements of the 2004 Act, we recommend that you act as quickly as possible to remedy your breach. As said, the Court can make an award of 1-3 times the value of the deposit as financial compensation to a Tenant regardless. There has been no guidance published on how the Court will make their decision as to the level of compensation awarded; the decision is at the discretion of the Court, taking into account all of the factors of the case.

That said, the severity of the breach, including multiple breaches or actively avoiding returning the deposit once you are aware of the breach, will likely adversely impact your position, which could result in higher compensation being awarded. If you can demonstrate that the breach was a genuine mistake and you have acted promptly to address the breach, then you will put yourself in the best possible position to minimise the compensation that you may be ordered to pay.

For Tenants, we recommend engaging with your Landlord as soon as you become aware that your deposit has not been correctly protected. You may be able to reach a settlement agreement with your Landlord, to avoid the stress and costs of issuing a claim for deposit compensation. However, if this is not possible then you are entitled to make your claim and you will have 6 years from the date that the breach occurred.

How can Ellis Jones help you?

Ellis Jones have a specialised Dispute Resolution team available to assist both Landlords and Tenants. If you are a Landlord that has failed to protect a deposit or if you are a tenant and you think that the deposit you have paid has not been correctly protected, we would be happy to discuss your case and see if we are able to assist. Should you wish to discuss this further, please do not hesitate to contact our specialist Dispute Resolution team on 01202 525333 or emma.bowditch@ellisjones.co.uk