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Wednesday Jul 08, 2015

Landlords and deposits

While researching the rights and obligations of tenants and landlords in England, the matter of a tenant's deposit and how it is protected, came up quite often.

If the landlord requires a deposit, it is for security against any damage caused by the tenant, and may be withheld in full or in part if the tenant owes utility charges, cost for repairs or any other relevant expense.

If there is no deduction, the deposit is refundable within 7 days after the tenant moves out of the dwelling in South Africa, and 10 days in England.

In South Africa, the deposit once agreed upon, must be paid before the tenant takes occupation in terms of section 5(3)(c) of the Rental Housing Act 50 of 1999 regardless of whether the lease is for a fixed term or a common law periodic one (such as monthly or weekly).

The landlord holds the deposit, which he or she must invest in an interest-bearing account with a financial institution and refund the deposit with interest. The landlord must provide the tenant on request, written proof of interest accrued on the deposit.

In the event of a dispute, the tenant can lodge a claim with the provincial Rental Housing Tribunal or the small claims court.

In England, the general practice is that no interest is paid on the deposit, but the tenant's deposit on an assured short-hold tenancy (fixed term lease) is protected, since it must be paid into one of the government-approved tenancy deposit protection schemes from April 2007.

In other words, the landlord pays the deposit to the scheme administrator of the Deposit Protection Service (DPS), which is a third party and in the absence of any dispute, the tenant is guaranteed a full refund. The tenant can also check online to verify if the deposit is protected.

The other two services available for landlords apart from the above custodial scheme is Mydeposits and the Dispute Service (TDS). These are insurance-backed schemes and the landlord holds the deposit on payment of a fee when using Mydeposits.

The deposit protection schemes play an important role in the event the landlord does not refund the deposit or makes a partial repayment.

The tenant can contact the scheme the landlord used to have the dispute resolved, at no cost, through the alternative dispute resolution (ADR) services provided by the scheme - as long as the landlord agrees to the ADR.

The tenant can approach the county court at his or her own costs to start legal proceedings to recover the deposit.

If the landlord or agent fails to lodge the deposit with the scheme or fails to give the prescribed information to the tenant within 30 days about how the money is being held, among other information, the landlord is prevented from regaining possession of the property unless the deposit is refunded or protected.

The court can order a refund up to three times the deposit amount within 14 days in the event the tenant succeeds in a court application to have the deposit protected and proves that the landlord failed to comply with the scheme.

In a decision by the Birmingham County Court in Gardner v McCusker [2014] 3BM70525, the court held that even where the tenancy becomes a statutory periodic lease after the expiry of the fixed-term lease, a landlord must provide the tenant a further copy of the prescribed information about the deposit scheme within 30 days of the expiration of the fixed lease.

Failing to comply means the landlord cannot serve a notice to terminate the lease, even though the deposit is protected.

The judge refused the landlord's application for possession in terms of section 21 notice (at least 2 months' notice to the tenant for vacant occupation on a statutory periodic tenancy) and ordered the deposit be refunded to the tenant with damages two times the value of the deposit.

What if the tenant entered into a fixed term lease prior to April 2007 and becomes periodic tenant thereafter?

In Superstrike Ltd v Rodrigues (2013) EWCA Civ 669, the Court of Appeal on 14th June 2013 delivered its judgment that the landlord must protect the deposit and give the prescribed information to the tenant who continues to occupy the property on a periodic lease after the fixed term.

Since the landlord failed to comply, it was not entitled to serve a notice under section 21 on June 2011 and accordingly not entitled to obtain possession of the premises.

Perhaps the next generation amendments to the Rental Housing Act should consider a scheme to protect the tenant's deposit and award contracts to independent entities.

Would it work for South Africans and what about the accrued interest that is likely to go to the scheme for administrative and other expenses?

Dr Sayed Iqbal Mohamed
Chairman, Organisation of Civic Rights
Tenant Issues
Daily News


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