Returning a tenancy deposit by cheque

Richard Pulford, Associate Solicitor in the Dispute Resolution team, looks at the case of Richworth Limited v Billingham (2023) and what Landlord’s need to consider when trying to return a deposit to a tenant.

 

Returning a tenancy deposit

There are any number of reasons that a landlord may want to return a deposit to a tenant mid-way through a tenancy. Most of these will be with consent and agreement of both parties. Whether this is to help with the funding of a new deposit for the tenant’s next tenancy, or even that the tenancy has been going on for so long that the landlord agrees that there is little point in holding security to repair items that had reached the stage where they would need to be replaced anyway. However, a more common reason for the return of a deposit during a tenancy is to try to remedy a breach on the part of the landlord, namely the failure to properly protect the deposit.

We have previously discussed the financial ramifications of failing to register a deposit, however one of the more serious penalties is not financial in the traditional sense. While a deposit has not been protected properly, a valid section 21 notice cannot be served to evict the tenant. If therefore, there was a procedural error at the beginning of the tenancy that left the deposit unprotected, landlords may be looking to return the security deposit to the tenant. If there is no deposit, there is nothing to protect, and so a valid section 21 can be served.

But what happens if the tenant either refuses to accept the deposit or just fails to provide the necessary banking information?

 

A case example

This is where the facts of Richworth Limited v Billingham (2023) become important. This case dealt with a very similar situation where the Landlord returned the deposit by cheque but crucially that the tenant has not taken the cheque to their bank to pay the money in and had not informed the landlord that they would not accept the deposit by cheque. There were plenty of other factors in this case with non-service of pleadings, respective counsel and the judge hearing the case in the absence of crucial documentation and the landlord’s closed bank accounts that make the full judgment worth a read for full context and makes the specific decision not as important as the guidance that was provided. However, for the average Landlord that finds themselves in a situation like this, the main question is, in a case like this, is the deposit returned?

Ultimately, as is so often the case with complicated issues like this, the answer is…it depends.

It was determined in this case that there was a differentiation between the word ‘returned’ as referred to in s215(2A) Housing Act 2004 and ‘paid’. Therefore, it is indeed possible to return a deposit by cheque which is useful for Landlords to know, however this does not necessarily mean this course of action is recommended. Another relevant factor is, was the tenant given enough time between the return of the deposit and the service of the section 21 notice for the tenant to either pay in the cheque or express an unambiguous intent to refuse the cheque sent. If they were essentially sent together or with one day between, the ‘ambush’ question as used by the Defendant in Richworth becomes more palatable to the judge. Finally, the non-communication from the tenant about the acceptance of the deposit is not determinative either way.

The main reason for the landlord wanting to return the deposit in this situation is certainty. They will want to know that the subsequent section 21 notice is valid. What is clear from this case, is that unless the tenant pays in the cheque to their bank before the service of the section 21 notice, you do not have this certainty if you are the landlord. 

 

Should tenancy deposits be returned by cheque?

The lessons here are:

To tenants – if you want to refuse to accept the deposit by cheque, make sure this is clearly set out to the landlord as soon as you receive it.

To Landlords – Only resort to returning a deposit by cheque as a last resort. Try to obtain consent from the tenant prior and make sure enough time is left between returning the deposit and serving the section 21 notice so that you have a good idea as to what has happened to that cheque. Otherwise, the validity of the section 21 notice can come under significant scrutiny. 

It should also be noted that whilst a County Court appeal case and therefore non-binding, the decision was handed down by HHJ Luba which means that the position is as authoritative as it can be without being binding.

 

The next steps 

Whenever anyone is presented with a situation like this, early advice is always recommended. If any landlords or managing agents find themselves in a situation like this and advice is required, our property disputes team can assist. Contact our team today on [email protected].