‘High rent’ rules change

WILL OAKES of Attwells Solicitors highlights a potential pitfall for landlords following a change in the law tenancy deposits

ON October 1, 2010, the law relating to assured shorthold tenancies and tenancy deposits was altered by the coming into force of the Assured Tenancies (Amendment) (England) Order 2010.

It has been the case since April 1, 2007 that a landlord who takes a deposit from a tenant under the terms of an assured shorthold tenancy has been required to protect that deposit within a Deposit Protection Scheme.

Under these schemes, the parties are able to resolve matters through an independent arbitration procedure and avoid the cost of perhaps lengthy and action through the County Court.

Under the Housing Act 1988 tenancies which were entered into on or after April 1, 1990 and reserve a high rental cannot be assured shorthold tenancies. As such, the provisions relating to protections of deposits do not apply in relation to these tenancies. The regulations which came into force at the beginning of October altered the figure which was considered to be “high rent” from �25,000 to �100,000 per year.

This change in the law applies retrospectively and has the potential to catch out landlords who are not familiar with the legislation. For example, a landlord who let a property for a term of one year on January 1, 2010 at a rent of �30,000 per year was under no obligation to protect the deposit at the time the tenancy was created.

Since 1 October, however, the tenancy has been converted into an assured shorthold tenancy and the rules regarding protection of deposits do now apply. The landlord must protect the deposit within an authorised scheme, or risk the consequences of failing to comply.

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These consequences can be serious. The landlord is, firstly, prevented from serving a Section 21 Notice on the tenant whilst the deposit remains unpaid. This is the usual form of notice that is served by the landlord in order to preserve their right to possession of the property at the end of the contractual term. The removal of the right to serve this notice means that the tenant can only be evicted in the event of non-payment of rent or some other breach of the tenancy terms.

The legislation also provides for a financial penalty on the landlord for failing to comply. The landlord can be ordered to repay the deposit in full and also pay the tenant a sum of money equal to three times the amount of the deposit. In properties with high rental values, this could expose the landlord to a large claim.

Whilst the government has expressed a hope that the courts take a sympathetic view of any breaches of the legislation by unwitting landlords, if you are a landlord of property with a rental value of between �25,000 and �100,000 it is best practice to protect the deposit in a scheme and remove your exposure to the risk of problems.