Deposits and Potential Litigation in Assured Shorthold Tenancies

In recent years, the private property rental market in the UK has grown substantially, with many people being priced out of the property market owing to the rapid rise in house prices. This change in the market has most heavily impacted upon young people, with PWC estimating that 59% of 20 to 39 year-olds in England will be privately renting by the year 2025. Further to this, according to figures from the Higher Education Statistics Agency (HESA), there were nearly 2.32 million students studying in the UK in the 2016-2017 academic year, the vast majority of whom live away from home in rented student houses, and thus rely on assured shorthold tenancies.

With each rental comes a security deposit – an initial outlay by the tenant, often up to 1.5 times the value of the monthly rent. It is important to note that Section 213(7) of the Housing Act 2004 prevents landlords from requesting a deposit in any form of property other than money. Thus, if a client has given a deposit in the form of other property, or a charge over property, this will not be held to be valid and can be recovered by an Application to the Courts under Section 214 (5).

It is not uncommon for disputes to arise in the event that the landlord wishes to retain some of the deposit for rectification works. So, what exactly is a landlord entitled to withhold money for? How can a tenant ensure that they receive all of the money back they are entitled to and deserve at the end of the tenancy? And how can Solicitors best help their clients (whether they be landlord or tenant) achieve the outcome they desire?

Disputes often arise when landlords withhold money for services rendered on the property, such as cleaning, waste removal, and decorating, in order to make the property suitable for the next tenant. However, they may also withhold some of the deposit to cover the cost of repairing any damaged or broken fixtures and fittings.

Landlords are only entitled claim for expenses incurred in retuning the property to its state at commencement of the tenancy – they cannot claim for improvement or for issues caused by ‘general wear and tear’. Replacements, such as replacing a chair broken by a tenant, must be on a like for like basis. For example, if the said hypothetical broken chair was not new upon the commencement of the tenancy, a landlord will only be able to withhold money to a value of an equivalent used chair – they are not entitled to charge a tenant for any upgrades. In short, a landlord can only claim for the value of a like-for-like replacement.

The burden of proof to justify deductions is on the landlords, who must prove on the balance of probabilities that the charges are necessary. This is particularly important in relation to charges for services. Landlords are also required to provide receipts or invoices as evidence of their expenditure. Without these, they have no basis to withhold the money so be sure to request these in any dispute.

So what action should be taken when dealing with a deposit dispute? The first course of action is to ensure the landlord or letting agency properly registered the deposit, as they are required to under Section 213 Housing Act 2004. This must be done by the landlord within 30 days of receipt of the deposit, and the landlords must, under subsection 6, provide the tenant with all the prescribed information they are required to by the deposit protection scheme. These requirements are necessary, so any other agreement, arrangement or contract between the parties attempting to avoid compliance would be superseded by the Act.

The law seems very much to be on the side of the tenant in most cases. The issue of deposit registration was addressed by the Court of Appeal in the case of Ayannuga v. Swindells (2012) CA (Civ) 6 where, although the landlord had protected the deposit perfectly well, their failure to provide the tenant with all of the prescribed information was deemed to be a breach of Section 213 (6) and they were subsequently ordered to pay three times the value of the deposit to the tenant and return the original deposit. The severity of this penalty demonstrates the serious and strict approach taken by the Courts on this issue.

Pursuing an action does require an Application to the Courts. However, the stress and cost of this can seem insignificant when, if their claim is successful, the tenant could be awarded up to three times the amount of their deposit, plus their initial deposit and interest.

But, what if the deposit is perfectly protected in compliance with the legislation but the landlords has made reductions the tenant does not agree with? This is exactly the situation I found myself in last year when moving out of my second-year student house. In these circumstances, there are two paths a tenant can take. The primary route should, in my opinion, always be through the independent Dispute Resolution services provided by the deposit protection agencies, the course of I action I successfully took. There are rules that apply to these processes and failure to abide with them can be problematic.

This is most cost-effective for all parties and can, theoretically, result in the least stress and cost. The decisions of the deposit protection services are binding on the parties within the scheme. However, the outcomes and decisions can still be challenged in Court should either party be dissatisfied.

Should a party still be dissatisfied following this process, then Court action is the alternative option. Before beginning Court proceedings, it is imperative that the parties comply with the Pre-action Protocols (which set out steps prospective litigants must follow prior to litigation commencing). This requires a prospective litigant to send a Letter Before Action to the other side. Not only is this a procedural requirement, but often results in earlier settlement.

Although a common issue, deposit disputes appear to be relatively infrequently contested or litigated. Certainly, when I asked many of my University friends why they chose not to contest their deductions, the responses tended to point towards the cost and hassle of the process being the key factors.

We at Cook & Co. Solicitors are happy to advise both landlords and tenants in respect of deposit related disputes, rent arrears recovery or possession proceedings. If you have a property related dispute, please contact our dedicated Property Dispute Resolution team by either contacting gareth.raisbeck@cookco.co.uk or calling us on 0117 325 7754. We are happy to help.