Chaos at CLG over tenancy deposit change

News Category: Industry News

An extraordinary behind-the-scenes uncertainty at Communities and Local Government has emerged over new rules on tenancy deposit protection, with the Government’s own lawyers unsure as to whether their own law – due to come into effect in just three weeks – can actually be enforced to cover existing tenancies.

As letting agents are aware, from October 1, new regulations mean that many rental properties with an annual rent of up to £100,000 a year will now automatically fall under the Assured Shorthold Tenancy classification and will need to meet rules on tenancy deposit protection.

The new threshold means that any individual tenant paying up to £100,000 for a flat or house as their main residence automatically gets AST status on October 1. Currently, the threshold is £25,000 annual rent.

Letting agents had been previously told that all tenancies with a rent up to the new threshold made on or after April 6, 2007, should have their deposits protected.

However, it is now unclear if the expanded requirement for retrospective tenancy deposit protection can legally extend to existing tenancies and CLG, the department responsible, itself is uncertain.

It is understood the three tenancy deposit schemes were all told this week that the requirement would affect only new tenancy agreements on or after October 1, together with renewals on or after October 1, and new deposits taken on or after that date.

However, when clarification was sought the following day, CLG advised that their own lawyers were unclear and were expecting to see a courtroom challenge to establish the principle.

It is thought this could be a challenge by a tenant whose expensive deposit was not protected from April 6, 2007, and has not been returned by the landlord.

A spokesman for CLG said: “The Housing Act 2004 refers to deposits taken ‘in connection with a shorthold tenancy’ so it could be argued that landlords would not have to protect the deposit if the tenancy was not an assured shorthold when the deposit was taken.

“The deposit would, however, have to be protected when the tenancy was renewed or if a new deposit was taken. Our advice to landlords therefore is still to protect the deposits from October 1. We see this as good practice and it cuts out the risk if they were ever challenged.”

Therefore, despite the uncertainty, agents should still advise their landlords to cover their own backs by ensuring that they stick to the original date of April 6, 2007, and protect deposits by October 1 on the relevant existing tenancies.

The position for new tenancies beginning on or after October 1 is unequivocal. Deposits that have been paid on relevant properties must be protected or the landlord will risk a fine of three times the original deposit. It will also not be possible to serve a section 21 notice if the deposit has not been protected.
 
The new rules are likely to hit larger shared properties, including student HMOs, as well as rental properties in expensive cities like London.


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