Do we need to protect our bonds?
When the national deposit protection legislation was introduced in 2007, it drummed up a great deal of scepticism within the lettings industry. Surely those landlords who abided by the law and advocated fairness in returning deposits would continue to do so, and those that didn’t would still find some way around the new legislation anyway? So for the sceptics amongst you, it may come as no surprise that a ‘loophole’ has emerged. In the early hours of 11th November, two landmark cases - Universal Estates versus Tiensia and Honeysuckle versus Fletcher - came to a close. In both cases, the landlords were filing for possession of their properties on the grounds of rent arrears. In response, their tenants counterclaimed, stating that their deposits had never been registered with a Deposit Protection Scheme. They were correct and, unsurprisingly, the landlords in question rushed to register the bonds before their day in court, albeit long after the 14-day deadline legislation appeared to impose on deposit registration. With the legislation and subsequent deposit schemes put in place to ensure tenants’ bonds are protected - and within timely fashion - you’d be forgiven for thinking that the Judges in both cases would find in favour of the tenants and, with it, issue severe penalties against the apparently law-bending landlords. Such penalties including the well-published fine of up to three times the deposit amount. However, holes within the legislation itself meant that the Judges were handicapped in their decisions.
Following the precedent set by an earlier case referred to the High Court - Draycott v Hannells - the Judges again agreed that under the legislation as it is currently written, late protection of deposits was indeed acceptable and landlords should not be fined for this misdemeanour alone. The 14-day registration can be seen as no more than an administrative necessity and certainly not a legal one, they ruled. The Court made no comment on the subject of deposits being registered after the end of a tenancy, leaving this particular issue open to further scrutiny. It may not be long, though, before it is tested by another hearing, given the publicity all three cases referred to have been given.
Does this mean landlords don’t have to register bonds?
Simply put - no. There is still a legal obligation to register a deposit taken in connection with an Assured Shorthold Tenancy. Whilst not registering within 14 days may not incur the large fines expected, it is highly likely that administration fines will be incurred, as well as possible court costs from both sides should late registration result in a Court Hearing. It’s worth bearing in mind that another penalty of nonregistration is the inability to serve a Section 21 Notice to regain possession of a property, which is very much a ‘sticky wicket’ if you currently enjoy next to no vacant periods between tenancies.