Last Updated: February 7, 2024
It is important to ensure you are compliant with all the prerequisites for a possession claim under Section 21. Below are examples from a number of cases in recent months where there have been issues regarding the sum of the deposit. The Tenant Fees Act 2019 (“TFA”) introduced a deposit cap equal to 5 weeks of rent for tenancies in England.
This landlord granted an AST, which commenced on 19/09/2019 following the inception of the TFA. The monthly rent was £875, and according to the tenancy agreement, a deposit of £1,010.00 was payable in connection with the tenancy. The maximum deposit permitted under the TFA in this instance is £1,009.61. A deposit of £1,009.61 was protected with an authorised scheme on 13/09/2019, with Prescribed Information (“PI”) being provided as part of the tenancy agreement. Prior to issuing possession proceedings, the managing agent confirmed that whilst the tenancy stated £1,010.00 was payable (and this sum was paid by the tenant), they only requested a deposit of £1,009.61 as per the sum protected within the scheme. It was confirmed that the excess sum of 39p was returned to the tenant.
The proceedings were issued accordingly with the tenant filing a defence to the claim, confirming that they paid £1,010 as a deposit but alleging that the 39p excess was not returned to them.
Upon seeking repeat instruction following the defence, we were instructed that the 39p had been allocated towards the tenant rent account and noted as a credit within the ledger. It was suggested that this sum would be repaid to the tenant at the end of the tenancy and that the reason it had not was because the tenant did not raise it.
Without an agreement for the excess sums to be applied to the rent account or funds being repaid directly to the tenant, this excess payment remained a sum paid as a deposit pursuant to the tenancy agreement; therefore, it was a prohibited payment as defined in the TFA.
The Section 21 notice was invalid, meaning the proceedings were fatally flawed; therefore, the claim was discontinued. The remedy available to the landlord was to return the deposit excess, serve updated Prescribed Information, then serve a new Section 21 notice and begin the process again.
This might seem draconian for the sake of 39p; however, the legislation is clear on these matters. The value of the deposit cap is a mathematical calculation and if the sum paid/held is greater than the maximum allowed, the excess will be deemed a prohibited payment. We are also aware that many online calculation tools round up the deposit sum to the nearest whole penny. Legal for Lettings considers that this will result in a breach of the TFA because the amount of excess is not relevant, it is the mere existence of an excess which will mean a prohibited payment is held.
We strongly suggest that the deposit calculations are completed manually, and in any event, are rounded down to the nearest penny (or perhaps down to the nearest pound). These calculations will ensure there can be no arguments of a prohibited payment being held – particularly given that proceedings may be derailed, causing significant delays or requiring you to start the process again, all for the sake of a few pence.
We continue to see thorough scrutiny of Section 21 applications by the court and duty solicitors and consider this an example of why you must ensure that you have satisfied all requirements, and that you are able to evidence the same.
If a prohibited payment is held, it is important to return the payment as soon as possible, ensuring that you have written evidence of this agreement.
At Legal for Lettings, our experts can help you navigate the technicalities of ever-changing legislation and provide advice to ensure you have the best prospects of successfully recovering possession of your property. If you want to see how we can help, get in touch at contact@legalforlettings.co.uk or by telephone on 0330 333 7183.