Increased burden for residential landlords - FURTHER UPDATE

A court has given landlords extra work to do by requiring deposits to be re-registered when a tenant remains in a property after an initial tenancy.

If landlords fail to re-register the tenant's deposit, it would make the task of recovering possession of the property significantly harder, and risks an award of compensation to the tenant.

The recent court decision increases the burden on residential landlords through an obligation to register deposits BOTH at the start of a tenancy AND potentially after the fixed term expires, if the tenant remains in the property.

We offer advice to landlords below on what they can do to protect their property interests.

Brief Background

Since 2007 residential landlords have had a strict obligation to register a deposit paid by a tenant under a Tenancy Deposit Scheme (TDS). Potential penalties for not doing this are compensation for the tenant and the landlord being prevented from serving a Section 21 Housing Act notice to bring the tenancy to an end.

Typically a residential landlord will give a tenant an assured shorthold tenancy for 6 – 12 months; the tenant will then either renew at the end of the term or move on.  Without careful drafting in the original tenancy, if the tenant simply carries on living in the property after the initial 6 or 12 month term, they will automatically move to a statutory periodic tenancy. The court decision says that at the point they move to a statutory periodic tenancy, the requirement to register the deposit will be triggered again; even though no money is likely to change hands.

Deregulation Act 2015

The DA 2105 came into force on 26 March 2015.  This did present some welcome reliefs for landlords from the additional burden of re-registration as follows:

• If the landlord took a deposit in respect of a fixed term AST (Assured Shorthold Tenancy) before 6 April 2007 which then became periodic after the TDS legislation came into force on 6 April 2007, then that landlord will not be jeopardised if it protects the deposit and provides the relevant prescribed information within 90 days calculated as commencing on 26 March 2015.
• If the landlord took a deposit after 6 April 2007, which it placed in a TDS and served the prescribed information, then if that AST became, or becomes, a statutory periodic tenancy, the landlord's compliance with the TDS legislation in respect of the original AST will suffice for the purposes of the statutory periodic tenancy. These amendments to the Housing Act 2004 confer no protection on those landlords who never protected the deposit during the original tenancy, and in such cases those Landlords will still need to register the deposit upon the statutory periodic tenancy commencing.
• The government has amended the legislation so any landlord of a tenancy that became periodic before the tenancy deposit scheme came into force on 6 April 2007 should protect those deposits. The legislation confirms that there is no financial penalty for failure to do so though.
  

Advice to landlords

Rachel Meredith, a solicitor specialising in landlord and tenant law comments:

"This undoubtedly means extra administration for landlords, but can be a nasty trap as a breach of the Tenancy Deposit Scheme makes recovering rental properties from tenants significantly more difficult.

We advise Landlords to adapt their tenancy documents to help avoid this administrative hurdle."

Actions that can be taken include:

1. Monitor property portfolios and expiry dates carefully to ensure tenancies do not automatically renew.
   
2. For existing tenancy portfolios a Landlord should consider on what basis each tenant is occupying, so as to determine whether they are caught by any of the new registration requirements, and to be able to register any relevant deposits within the 90 day period from 26 March 2015.
   
3. In cases where a tenant remains in a property after the end of the initial fixed term (on a statutory periodic tenancy) the landlord must consider whether they need to re-register the deposit with the designated Tenancy Deposit Scheme and serve the prescribed information on the tenant within 30 days of the end of the expiry of the fixed term tenancy.
   This re-registration must happen even though there is unlikely to be any new deposit payment.
   
4. Contact your Tenancy Deposit Scheme provider to check their procedures at the end of fixed term tenancies as, following the court decisions, providers seem to be dealing with the issue slightly differently.
   
5. Check the wording of your standard Assured Shorthold Tenancy documents. Potentially, a provision should be included that triggers a new contractual periodic tenancy at the end of the fixed term rather than risk creating a new statutory tenancy.
   
6. Contact Wrigleys for a checklist of your obligations as a landlord under the Tenancy Deposit Scheme.
   

June 2015

If you would like to discuss any aspect of this article further, please contact Rachel Meredith on 0113 244 6100.

The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors