Landlords must comply with new tenancy deposit requirements by 6 May

After this date landlords who do not pay a tenant's deposit into a Government-approved tenancy deposit scheme (TDS) within 30 days of receipt could be liable for a financial penalty of up to three times the amount of the deposit. The changes came into force for new tenancies on 6 April.

Since 2007, tenancy deposits paid to landlords under residential assured shorthold tenancies must be paid into a TDS, and prescribed information about the scheme must be sent to tenants. There are currently three organisations authorised to run these schemes. The new regime extends the period in which landlords must do so from 14 to 30 days. Landlords who fail to pay tenants' deposits into a TDS may be prevented from recovering possession of the property by being unable to serve a valid section 21 'notice to quit' on the tenant.

A section 21 notice, named for the relevant section of the Housing Act 1988, can be issued by at landlord to regain possession of a property once an assured shorthold tenancy agreement has ended. The landlord does not have to give any reason for issuing this notice.

Under the previous rules, landlords were permitted to pay the tenant's deposit into a TDS late at which point they would be able to serve a valid section 21 notice in order to remove the tenant. However, from May, a landlord who has not secured a deposit will only be able to serve the notice by paying all of the deposit money back to the tenant or by coming to an agreement with the tenant that it can offset all or part of the deposit against damage or unpaid rent. Alternatively, a landlord will be able to evict a tenant once a claim for non-compliance which that tenant has brought to court has been resolved.

A tenant can apply to court for an unprotected deposit to either be paid into a TDS or returned to the tenant, and can also apply for a payment from the landlord of between one and three times the amount of the deposit. Previously, landlords were able to avoid a strict penalty of three times the deposit amount by protecting the deposit at any time up until the day before the hearing, however under the new regime it will no longer be a defence to a tenant's claim for a penalty payment to pay the deposit into the TDS late. Tenants will also now be able to bring a claim for non-compliance up to six years after the tenancy has ended.

Property law expert Bethan Williams of Pinsent Masons, the law firm behind Out-Law.com, said that penalties for non-compliance were very rarely granted against the landlord in practice under the old regime after a court case clarified that deposits could be paid into a TDS out of time. Case law also prevented tenants from applying to court once their tenancies had ended.

"It is often only once a tenancy has ended that a tenant becomes aware that his or her deposit has not been paid into a TDS, and consequently this change increases the likelihood of claims being pursued against landlords for non-compliance," she said. "Landlords who have not properly protected all their tenancy deposits and sent the prescribed information to tenants will not be able to defend claims, and could be liable to pay a significant penalty."

However, she added that the increased time period was "a welcome change for landlords".

"The 14 day deadline was very tight, given the length of time it can take for cheques to clear and for payments to be transferred," she said.