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Tenancy Deposits and Legislation Updates

The relationship between landlords and their tenants has been subject to increasing regulation in recent years. The Tenancy Deposit Schemes (Scotland) Regulations 2011, which came into force on 7 March 2011, continues that trend. The Regulations introduce a statutory framework for the protection of deposits paid by tenants to their landlords at the commencement of their tenancies. New obligations are imposed which require landlords to pay new or transfer existing deposits into schemes approved for that purpose, to ensure that the deposit remains within the approved scheme for the duration of the tenancy, and to provide prescribed information to their tenants. There are time limits specified within the Regulations for compliance which are linked to the “operational date”, which, as its name suggests, is the date on which the first scheme becomes operational. The Scottish Government has recently announced that the operational date will be 2 JULY 2012. There are presently three Schemes which have achieved accreditation and these are Safe Deposits Scotland, My Deposits Scotland and The Letting Protection Service Scotland. Two schemes are currently engaged in a consultation process with the Scottish Ministers to secure approval as operating schemes. 
The basic duties, which are imposed directly on landlords rather than their agents, is contained in Regulation 3 which requires a landlord who has received a tenancy deposit after the operational date to (a) pay that deposit to the administrator of an approved scheme within 30 working days of the commencement of the tenancy; and (b) to provide their tenants, either within the lease or in a separate document, with the following information:

Confirmation of the tenancy deposit received and the date of receipt by the landlord;
The address of the leased property in respect of which the deposit is paid;
The date of payment of the deposit to the relevant scheme administrator;
The name and contact details of the scheme administrator;
The grounds on which the tenancy deposit may be retained by the landlord in whole or in part by reference to the terms of the Tenancy Agreement; and
A statement that the landlord has been entered, or has submitted an application to be so entered, into the register of landlords maintained by the Local Authority for the area in which the leased property is situated.

There are transitional provisions for tenancies commencing prior to and after 7 March 2011 and the operational date. The relevant compliance dates are:-
• For tenancies commencing prior to 7 March 2011 the landlord must comply with their obligations (a) within 30 working days of the date of renewal in respect of tenancies renewed, either by express agreement or tacit relocation, on or after 2 October 2012 and prior to 2 October 2012,on a date falling between 3 and 9 months following the operational date, or (b) within 9 months following the operational date for all other tenancies, by 15 May 2013. .• For tenancies commencing between 7 March 2011 and prior to 2 October 2012the operational date, the tenancy deposit must be paid, and the information provided to the tenant, by 13 November 2012.• For new tenancies commencing on or after 2 October 2012, compliance with the payment and information obligations is required within 30 working days following the commencement of the tenancy.within 30 working days following the date which falls 3 months after the operational date.
The landlord is also required to provide the relevant scheme administrator with their contact details and those of their tenant; details of the tenancy and the leased property; and confirmation that they have been registered, or that there is a pending application submitted on their behalf for registration, as a landlord with the Local Authority.   Scheme administrators are placed under a duty to disclose to the Local Authority details of any persons from whom deposits are received who appear to be an unregistered landlord. This is intended to strengthen the enforcement of landlord registration.  It is likely that failure to comply with the Deposit Regulations will be a relevant factor in assessing whether candidates for registration are “fit and proper persons” for entry onto the Register. 
The tenancy deposit may be transferred between schemes at the landlord’s discretion.  Any application for transfer or repayment of the deposit to the landlord for that purpose will be intimated to their tenant by the outgoing scheme administrator.
There are sanctions for breach of the landlords’ duties which may be invoked by a Sheriff on application from a tenant.  These sanctions include an order for payment by the landlord to their tenant of an amount not exceeding three times the tenancy deposit.
Once the tenancy has ended the Regulations establish is a procedure for recovery of the deposit. The landlord must submit an application to the relevant scheme administrator “as soon as reasonably practicable” for repayment of the deposit following the termination of the tenancy. The application should specify the date of termination and nominate the proportion of the deposit to which it is considered they and their tenants are respectively entitled.  A tenant may also apply for repayment but such an application will be disregarded if an application by their landlord is received by the scheme administrator within 30 working days of the tenant’s application. The tenant is notified of the division proposed by their landlord and is granted a period of 30 working days within which to intimate their acceptance or rejection of their landlords’ proposals. If there is agreement between landlord and tenant the deposit will be repaid according to the landlord’s application.  In the absence of any response by the tenant the deposit will be retained for an additional 5 working days following which it is repayable entirely to the landlord.  In the event of dispute the tenant may elect to enter the dispute resolution process available to participants in the relevant scheme. A referral will be made to an adjudicator for determination. Referral to adjudication is mandatory for landlords if it is requested by or consented to by their tenant. A tenant may however withhold their consent but the continued refusal of their consent will lead to repayment as proposed by the landlord. 
Landlords should be aware that following the operational date neither they nor their agents will be entitled to retain the deposits paid by their tenants. Any deposits held by them will require to be paid or transferred into an approved scheme within the prescribed time limits. Landlords will cease to control the release of the deposit which will be governed by the statutory procedures. They will be required to justify their proposed apportionment of the deposit by reference to the terms of the tenancy agreement. There is a presumption that the deposit is and remains the property of the tenant and landlords would be wise to review the terms of their lease to ensure that they clearly record the grounds on which deductions may be sought. The operative date has yet to be decided but will arrive during the course of this year and landlords would be advised to prepare in advance which will assist in a smooth transition to the new regime.
Balfour+Manson is able to provide information, advice and assistance to both landlords and tenants in relation to the new Deposit Scheme and all aspects of residential leasing. For further information please contact Irene Turner.