The penalty payment
As mentioned before, if you fail to protect the deposit within the 30 day time limit, and/or do not serve the prescribed information on the tenants, your tenants can bring a claim against you.
The penalty sum they are entitled to claim for will not be less than the deposit sum and will not be more than three times the deposit sum.
So if the deposit is £1,000 then the minimum they will get is £1,000 and the maximum they can get is £3,000. How much they are ordered to pay is within the discretion of the Judge.
We have not seen many of these cases yet, but I suspect that a Judge will award the lower sum if he sees that the landlord has made a genuine mistake which has been corrected as soon as he finds out about it.
However if a landlord refuses to protect the deposit when asked and otherwise behaves in an irresponsible way – the Judge will probably make one of the higher awards.
Is your tenant likely to make a claim?
This is an important question. if your tenant is not going to claim, then this is not something you need to worry about.
First – it is not cheap to bring a claim. There are quite substantial court fees. As well as the issue fee, there are also very substantial fees they have to pay when setting the case down for trial. This is putting a lot of tenants off bringing a claim.
However if they DO bring a claim – then as you will almost certainly lose the case (at least to the extend of having to pay at least 1x the deposit) you will be almost certainly be ordered to re-imburse their costs via a costs order. So if they do start proceedings its pretty important that you settle it quickly before these fees are incurred.
Second – tenants on a low income or benefit will be exempt from paying court fees – so this will not be a deterrent for them.
Third – there are now companies on the internet who offer a no win no fee service for this type of claim. So tenants using these services will not be at risk of having to fork out for the fees.
Then there is the personality of the tenant – are they the type of person who is likely to go to court?
Its difficult to tell (and all tenants are different), but I suspect it is unwise to completely rule out the possibility that your tenant will claim – however unlikely you think it is to actually happen.
The limitation period
Under an act called the Limitation Act, your tenants will be able to bring a claim for the penalty payment at any time during the next six years. However if they try to bring a claim after that they will not succeed and their claim will be statute barred.
However six years is a long time. I am sure you do not want to live under the threat of this claim being brought against you. So if you can, you may want to consider resolving it now by trying to reach an agreement with your tenant.
This may not be appropriate in all situations. However if you are worried about a claim coming ‘out of the woodwork’ years later you may want to have a stab at getting it resolved now.
I will cover this in the next part.