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Section 21 notice and breach of deposit protection

The common advice when a tenancy deposit wasn’t protected or was protected late is that it must be returned before a valid section 21 notice may be served.

Fortunately for landlords, this is not the whole story.

What the law actually states is the following (section 215 of the Housing Act 2004):

(1) Subject to subsection (2A),] if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when—

(a) the deposit is not being held in accordance with an authorised scheme, or

(b) section 213(3) have not been complied with in relation to the deposit.

That is to say, if a deposit has been paid in relation to an AST and not protected or protected late (section 213(3)) then no section 21 notice may be given in relation to that tenancy.

In addition, the infamous Superstrike v. Rodrigues clarified that whenever a new tenancy is created and the deposit “carries over” the deposit is deemed to have been paid on the day the new tenancy is created. Hence the requirement to potentially re-protect the deposit every time a new tenancy is created.

What does it all mean?

It means that the requirement to return the deposit applies only when intending to serve a section 21 notice during the tenancy for which the deposit wasn’t protected or protected late, not during another tenancy.

For example, if the deposit was protected late during a fixed term AST then no section 21 notice may be served during that tenancy.
However, as soon as that tenancy ends and is replaced by a statutory periodic AST, which is of course a new tenancy, then a valid section 21 notice may be served as long as the deposit is correctly protection in relation to that new tenancy.

The same applies to any renewal and any replacement tenancy in general.

This will not remove the liability for the breach of deposit protection in relation to the original tenancy, nevertheless should keep this point in mind before returning the deposit:

Perhaps the original tenancy was replaced and the deposit is already correctly protected in relation to the new tenancy.
Or perhaps the original tenancy is due to be replaced soon, in which case it may be simpler to wait until it is then serve notice (especially, of course, if it is due to be replaced by a periodic tenancy).

Of course, full and correct deposit protection avoids any such headache in the first place… Lesson learned.