Tenant Fees Act & Deposits

The Tenant Fees Act introduced the restriction on the amount of a deposit to, generally, five weeks rent.That applies to new tenancies commencing from 1 June 2019.

The Act has transitional provisions which mean that any pre–June 2019 tenancy which contained a requirement for a tenant to pay "prohibited sums" will be outlawed after 1 June 2020.

Many landlords who have taken a deposit greater than five weeks on a pre-June 2019 tenancy may now be considering what this means for the balance of any deposit after 1 June 2020.Specifically, are landlords required to repay that deposit balance?

The answer is no, where the tenancy continues – either as a contractual periodic tenancy, or in a Statutory Periodic Tenancy (where that Statutory Periodic tenancy arose before 1 June 2020).

The rationale behind this is that the Act outlaws the situation where a landlord "accepts" a prohibited payment.If a landlord has already "accepted" that payment and is therefore continuing to hold it, the landlord is not doing anything which breaches the terms of the Act.

It seems to me that the only risk that a landlord faces here is that if a contractual fixed term expires after 1 June 2020 and no contractual periodic tenancy comes into effect at the end of the fixed term, then using the Superstrike analogy, a new tenancy comes into effect (being the statutory periodic tenancy) at that time.If you remember, the whole point about Superstrike was that it created the legal fiction of paying back a tenant's deposit and it being immediately paid to a landlord.In those circumstances, it is likely to be argued that a landlord does then "accept" the deposit.If that deposit exceeded five weeks rent, then the landlord is in breach of the restriction imposed by the Act.

Obviously, it goes without saying that if an existing fixed term comes to an end after 1 June 2020 and the tenant remains in occupation under a new tenancy, that new tenancy will be caught by the restriction on the size of the deposit.

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Lettings eBrief - 18 February 2020