Deregulation Act 2015: Changes in tenancy deposit rules and implications for section 21 notices
By Anjali Narshi
On 26 March 2015, the Deregulation Act 2015 (“the 2015 Act”) came into force. It amends parts of the Housing Act 2004 dealing with tenancy deposits and Section 21 Notices, which had previously been amended by Section 184 of the Localism Act 2011.
The law before 26 March 2015
If a landlord entered into an assured shorthold tenancy on or after 6 April 2007 and received a deposit, it had to be registered with an authorised tenancy deposit scheme (TDS) within 30 days of receipt. Landlords were also required to provide tenants with the relevant prescribed information detailing where and how the deposit was protected, again within the same 30 day period.
Failure to comply with these rules had two implications for the landlord:
- They would have to pay a penalty of upto 3 times the deposit amount to the tenant if proceedings were bought against them under Section 214 of the 2004 Act.
- They could not serve a valid Section 21 Notice unless the deposit was returned to the tenant in full (or with agreed deductions) or wait until court proceedings under Section 214 had been resolved (Section 215(2A)) (“the Deposit Rule").
The crucial point about the rules was that they did not affect tenancies entered into (or deposits received) before 6 April 2007.
The Court of Appeal in Superstrike v Rodrigues  EWCA Civ 669 was faced with the question of what should happen where a deposit was received in relation to a tenancy granted before 6 April 2007 but the fixed term ended after this date and a statutory periodic tenancy then commenced. Did the deposit now have to be protected and the prescribed information served, even though the 30 day time limit would have long expired?
The court held that it did. The deposit was to be treated as having been paid and received afresh at the start of the statutory periodic tenancy and so the rules must be complied with at that point.
However, this interpretation caused obvious problems for landlords. For instance, landlords who had not registered the deposit within 30 days of the tenancy becoming periodic would now be liable under Section 214 proceedings, if instigated by the tenant.
It also had implications for deposits which had already been protected and raised the question of whether every time a tenancy became periodic (or was renewed) the landlord had re-register the deposit and re-serve the prescribed information, even though the deposit remained protected in the same TDS from one tenancy to the next.
In Charalambous and another v Ng and another  EWCA Civ 1604, the Court of Appeal held that it did. It went onto say that this applied even where the deposit was received before 6 April 2007 (even though the deposit could not be said to have been “paid” after the 6 April 2007).
The 2015 Act is intended to address these problems and resolve the confusion.
It states that regardless of when a deposit is paid, it must be protected and the prescribed information provided (or dealt with under the Deposit Rule) before a valid Section 21 Notice can be served (Section 215(1) and (2)).
For deposits received before 6 April 2007 there is no deadline by when the landlord must protect the deposit and serve the prescribed information by and there are no financial penalties for non-compliance, unless the tenancy became periodic after 6 April 2007 (See Section 215A below).
Section 214 has therefore been amended so that it only applies to deposits paid on or after 6 April 2007.
For tenancies entered into on or after 6 April 2007, the deposit must be protected within 30 days of receipt and the prescribed information served (Section 215(1A) and (2)). So again, it does not matter if the prescribed information is served outside the 30 day time limit.
The Act then goes on to look at the following two scenarios in greater detail:
- Where a deposit is received before 6 April 2007 and the tenancy becomes periodic after this date.
- Where a deposit is received on or after 6 April 2007, registered with a TDS and the tenancy later becomes periodic / is renewed.
Section 215A: Statutory periodic tenancies: deposit received before 6 April 2007.
Where a fixed term tenancy was entered into before 6 April 2007 and a deposit was received, it would not have been protected because there was no requirement to do so at the time.
If the tenancy then became periodic after 6 April 2007, is still running on 26 March 2015 and the landlord still holds all or part of the initial deposit paid, that deposit (and any other deposit received since that date) must now be protected and the prescribed information served in line with Section 213 of the Housing Act 2004 (as amended).
However, the landlord would never be able to comply with this requirement because the 30 day period to protect the deposit from the date it was received would have long expired.
Therefore, the Act provides an amnesty period in this regard. It gives landlords a period of 90 days grace from the date it comes into force (ie: 26 March 2015) to have the deposit registered and the prescribed information served. So landlords have until 23 June 2015 to comply with the rules.
The significant point is that if the landlord doesn’t do this, the tenant can now bring a claim against them under Section 214 and the only way in which to serve a valid Section 21 Notice would be to deal with it under the Deposit Rule.
If, however, on 26 March 2015 there is no longer a periodic tenancy in existence or no deposit continues to be held in connection with it, the landlord will be deemed to have complied with the rules in respect of the deposit and will not need to do anything further.
Section 215B: Shorthold tenancies: deposit received on or after 6 April 2007.
Where a deposit is received on or after 6 April 2007, registered with a TDS and the prescribed information sent to the tenant (regardless of whether these steps were completed late) and a new tenancy then arises (either through a renewal or because of a statutory periodic tenancy), the landlord will not need to re-register the deposit or re-send the prescribed information to the tenant, so long as the deposit remains protected in accordance with the same authorised TDS.
This is the case not just in respect of the first “renewal” but also in cases where there are multiple tenancy renewals, which could include a mixture of fixed term tenancies and periodic tenancies. (Section 215B (1)(d) and (e)).
This rule also applies if the deposit was received before 6 April 2007 and in connection with an earlier tenancy (Section 215B (3)).
Section 215C: Transitional provisions
The new rules under Sections 215A and 215B are treated as though they have effect from 6 April 2007 and so are retrospective in this regard. They do not, however, apply to cases where a potential claim under Section 214 or Section 21 proceedings has been settled or a claim has been finally determined by the court.
The 2015 Act also states that the court must not make a costs order against a tenant or relevant person where Section 214 or Section 21 proceedings were issued before 26 March 2015 but had not been settled or determined before that date and, because of the new rules, the Court decides not to make an order under Section 214(4) or grant a possession order or allow an appeal by the landlord against such orders.
The image below is an infographic explaining the laws. Click on the image for to see a larger version.
The Section 21 route is no longer as simple and straightforward as it used to be.
The 2015 Act intends to provide protection to tenants who could be facing eviction for unfair reasons, especially where they may be suffering from poor or unsafe property conditions.
It therefore makes the following changes:
- If an improvement notice or notice of emergency remedial action (“the Relevant Notices”) is served on the landlord, a Section 21 Notice cannot be served on the tenant for 6 months from the date of service of those Relevant Notices.
- A Section 21 Notice is invalid if, before it was served, the tenant complained in writing or otherwise about the condition of the Property, the landlord failed to provide an adequate response within 14 days and the tenant complained to the Local Authority who served a Relevant Notice. Exceptions to these two rules apply where:
- The Relevant Notices have been quashed, revoked or suspended.
- A decision not to revoke the Relevant Notices has been reversed.
- The condition of the Property which gave rise to the Relevant Notice is due to a breach by the tenant to use the Property in a tenant like manner.
- The Property is genuinely on the market for sale when a Section 21 Notice is served. There cannot be a “genuine sale” if the buyer is associated to the landlord, a business partner, a person associated with the business partner or a business partner of a person associated to the landlord.
- Section 21 Notices under Section 21(4) are no longer required to end on the last day of a period. The landlord simply needs to provide a 2 month Notice (which allows for 2 days service if sent by post).
- Section 21 Notices cannot be served within the first four months of a tenancy.
- Section 21 proceedings cannot be bought later than 6 months after the date of service of the Section 21 Notice.
Checklist for serving a valid section 21 notice
To make sure your Section 21 Notice is valid, follow this simple checklist of steps:
- If the landlord has raised a complaint about the condition of the Property, have I dealt with it?
- Have I been served with a Relevant Notice from the Local Authority and if so, has 6 months expired or does one of the exceptions apply?
- Has the tenancy been running for at least four months?
- Have I dealt with any deposit appropriately?
- Is the Notice for the at least two full months (plus an additional two working days if I am sending it by post?