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The serious business of breaching Tenancy Deposit Schemes

Breaches of the Tenancy Deposit Scheme (Scotland) Regulations, (TDS) even those that are minor, can lead to very severe penalties for landlords. Recent Court cases have shown just how severe.

Our paperwork and procedures are designed to avoid the mistakes made by landlords in these cases. It is important that landlords and investors are extremely vigilant in relation to the legal requirements, and we strongly recommend that they check that all paperwork is in order in the light of these cases, or ask their letting agency to do so.

Letting Solutions - Aug - Blog

The Regulations were introduced in 2012 to guarantee that landlords pay a tenant’s deposit in to an approved scheme. Said deposit is held in the scheme for the duration of the tenant’s stay in the rental property. As well as this, the deposit must be paid into the scheme within 30 working days of the start of the tenancy. Landlords must also provide the tenant with certain specified information.

Under the scheme, there is a dispute resolution process which allows for an independent adjudicator to look at evidence provided by both tenant and landlord to resolve disagreements over the return of tenancy deposits.

Below, we outline a number of cases in relation to the TDS and the ways in which you can avoid being penalised. None of these cases were in any way connected with Letting Solutions, but are the result of our monitoring of legal cases involving other letting agents and individual landlords without agents.

Fraser and Pease v Meehan

In the above case a deposit of £1,150 was taken on an assured shorthold tenancy in May 2009. Under the transitional arrangements of the Regulations, the deposit should have been protected by the 24th November 2012. However, the landlord didn’t adhere to this requirement and also kept half of the deposit at the end of the tenancy. The deposit had not been protected, so the tenants didn’t have the option to turn to the independent dispute resolution procedure. The landlord was therefore ordered by the Court to pay his tenants the sum of £3,450, the maximum fine of three times the deposit available, for failing to protect their initial £1,150 deposit.

Sheriff Mackie said that the purpose of the Regulations is not to compensate tenants, but to act as a sanction to landlords who do not comply with them. As a result, she said landlords and letting agents should be aware that the Court may have no hesitancy in imposing the maximum ‘sanction’ (of three times the deposit) upon landlords who don’t place a deposit in an approved tenancy scheme within the required time.

Sheriff Mackie also raised the point that the defendant in the above case had been employed by an estate agent and should have been aware of his obligations regarding the Regulations.

Leanne Smith v Kwan Martin Chan

The above case has received less attention, but the warning to landlords is just as blunt. Unlike the Fraser case, this wasn’t to do with the landlord failing to pay the deposit into an approved scheme within the required time. Instead, it involved a ‘technical’ breach as the landlord had failed to give the tenant the agreed information required under Regulation 42 of the 2011 Regulations.

The landlord’s letting agent had tried to send the prearranged information to the tenant, but they used the incorrect postcode. Consequently, the tenant was oblivious to the face that she could raise a dispute with the tenancy deposit scheme as to the amount to be retained by the landlord.

This simple clerical error meant that the landlord was ordered to pay the tenant £775, the value of the deposit. The Sheriff found that “there may be circumstances where a party can rely on a presumption of the receipt of a communication dispatched in the ordinary course of business…” However in this case an incorrect postcode had been used and the Sheriff found that this presumption could not be relied on.

Landlords must ensure that tenants receive the necessary documentation. Elsewhere in the UK, it is a requirement that landlords give tenants an opportunity to sign the relevant documentation. Scottish landlords are now urged to follow this example. Otherwise, it is advised that landlords use recorded delivery and obtain a receipt as confirmation that the tenants have received the documentation. Our own procedures require tenants to sign the necessary documentation at the lease signing.

Tenzin v Russell 

This publicised case is a further example of the Court having no hesitation in imposing the maximum sanction of three times the deposit on landlords who fail to place a deposit in an approved tenancy scheme within the required time. The landlord in question was ordered to pay the maximum sanction. He appealed the decision on the basis that the summary application was incompetent and the Sheriff gave no reasoning for awarding payment of three times the deposit.

The Sheriff Principal rejected the appeal and upheld the maximum sanction. The Sheriff Principal’s opinion was similar to that of Sheriff Mackie’s in the Fraser v Meehan case, echoing that the purpose of the Regulations is to act as a sanction to landlords that do not comply with the Regulations, not as a means of recompense for the tenants.

With the above cases in mind, we always advise landlords to proceed with caution, making sure that they comply with the Regulations at all times. If not, the consequences could be severe. The obligation to pay the deposit into a scheme and provide the requisite information is strict. Even if a tenant has given notice to terminate the lease prior to the deposit being transferred to the scheme, the deposit should still be transferred within 30 working days in order to avoid a possible claim. Careful attention to the paperwork landlords use for the TDS, or that used by their letting agents, is particularly important as adequate paperwork for easy compliance was not available when the scheme was introduced. In Letting Solutions, we therefore devised our own paperwork and related procedures which have worked very successfully with no issues to date over compliance.

We hope this information is beneficial and if you have any additional queries about tenancy deposits, please do contact Letting Solutions on: 0845 520 1420. What’s more, if you are thinking about letting a property, find out how much it could fetch in monthly rents using our online value my property tool.