The consequences of deposit protection failures for landlords

Under the Housing Act 2004, landlords of residential property in England and Wales are legally required to protect a tenant’s deposit in a government-approved tenancy deposit scheme (TDS) within 30 days of receiving it.

They must also provide the tenant with the "Prescribed Information” relating to the deposit within the same 30-day period. Failure to comply with these requirements can have significant consequences for landlords.

Impact on serving a Section 21 notice

One of the key consequences of failing to protect a tenant’s deposit correctly is the restriction on serving a valid Section 21 notice (no-fault eviction), which is used to regain possession of a property.

If a landlord has not protected the deposit within 30 days of receipt, they cannot serve a Section 21 notice unless:

• The deposit has been returned to the tenant in full (or with agreed deductions), or
• Any claim by the tenant in respect of the deposit has been resolved.

If the deposit is protected but the prescribed information is not served within 30 days, a Section 21 notice cannot be served until the Prescribed Information has been given.

In either case, the financial penalties outlined below will still apply.

The restriction on serving a Section 21 notice is designed to ensure landlords comply with their obligations and that disputes over deposits are resolved in a prescribed, proportionate, and efficient manner.

In practice, many landlords and sometimes their agents remain unaware of this restriction. They may serve an invalid Section 21 notice and instruct solicitors to commence possession proceedings. At that point, we review the notice and, if applicable, advise that the notice is invalid, meaning the process must restart. Once the deposit element of the matter is rectified, serving a fresh Section 21 notice is necessary but inevitably delays possession, as a further minimum two-month notice period applies.

Potential claims by tenants

Where a deposit is not properly protected, or the prescribed information has not been served, the landlord will be in breach of the Housing Act 2004. In such cases, the court must order the return of the deposit and may also impose a financial penalty of between one and three times the value of the deposit on the landlord.

When a new landlord takes over an assured shorthold tenancy

When a property is sold and a new landlord takes over an Assured Shorthold Tenancy (AST), two key requirements must be met:

• The tenant must be notified in writing of the change, and the new landlord’s address for service must be provided in accordance with sections 47 and 48 of the Landlord and Tenant Act 1987.
• The deposit must be re-protected in an account in the name of the new landlord, with the prescribed information for that scheme being served on the tenant within 30 days of receiving the deposit.

Landlords should keep a clear record of this, with the requirement for transfer or release of the deposit being part of the transaction process and agreement between the buyer and the seller.

Failure to re-protect the deposit will likely constitute a breach for the new landlord and will take away their ability to serve a valid Section 21 notice.

At the end of the tenancy

At the end of the tenancy, landlords must return the deposit, subject to any lawful deductions for damage, unpaid rent, or breaches of the tenancy agreement. Failing to do so may again expose landlords to legal claims.

Conclusion

Failure to protect a deposit or to serve the required prescribed information within 30 days can severely limit a landlord’s ability to regain possession of their property and expose them to financial penalties.

Landlords should therefore ensure full compliance with their statutory obligations. Proactive compliance at the outset of a tenancy is the most effective way to avoid costly consequences later.