Does new owner inherit liability for failure to protect tenant deposit?

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    Does new owner inherit liability for failure to protect tenant deposit?

    I am in the process of buying a property which has a tenant in situ who paid a deposit which was not protected.

    General intention had been for deposit to be paid to me and for me to protect post-completion. I believe that I would not assume responsibility for vendor's breach, and that tenant could sue the vendor for it but not me.

    Is this correct?
    There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

    #2
    Iirc you should be ok if you protect properly and quick enough. "Old" owner remains liable for his failure. If you break regs you'll both be liable.

    Think theres something on it in Shelter Legal.

    Planning on serving S48 & s3 notice(s)?
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      Thanks.

      Originally posted by theartfullodger View Post
      Planning on serving S48 & s3 notice(s)?
      Yes I am.
      There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

      Comment


        #4
        Section 214(4) HA 2004 says that: "The court must order the landlord to pay to the applicant a sum of money not less than the amount of the deposit and not more than three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order." I have had a quick look at the Act and cannot see anything in it which provides that "the landlord" refers only to the landlord when the deposit was taken. Accordingly it would seem that a successor landlord can be successfully sued if the deposit was protected late or not at all.

        It should though be possible to avoid problems by the conveyancer doing due diligence. If there is any doubt a suitable retention can be made.

        Comment


          #5
          Shelter's view... FWIW
          https://england.shelter.org.uk/profe...ndlord_changes

          Note the various Acts and sections quoted in the footnotes..And differences between custodial & insurance.

          IANAL
          I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

          Comment


            #6
            Section 3 of the Landlord and Tenant Act 1985 determines this, I think.

            "The person who was the landlord under the tenancy immediately before the assignment (“the old landlord”) shall be liable to the tenant in respect of any breach of any covenant, condition or agreement under the tenancy occurring before the end of the relevant period in like manner as if the interest assigned were still vested in him"

            The assignment happens when the sale completes and the "relevant period" ends when the correct notice of the change and the details required are given to the tenant.

            I can't see any way that the deposit protection regulations are not covered by "any covenant, condition or agreement under the tenancy", but it is possible because it doesn't specifically mention legislation, law or regulation.

            I believe that the new landlord "receives" the deposit when the sale completes, not inherits the original receipt when they step into the seller's tenancy "shoes".

            There are a number of other things that a landlord has to do when a tenancy begins, and those also need to be covered off in this kind of transaction.

            I have previously bought tenanted properties, but would no longer do so unless it was a spectacular bargain.
            It would mitigate some of the concerns if the seller could provide a witnessed statement signed by them and the tenant confirming that everything that should have been done had been done.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Thanks for the responses.

              I have also found this view from Tessa Shepperson suggesting that purchaser inherits responsibility from vendor:

              As the previous landlord failed to do this [protect deposit], my view is that you are now liable, in his place as landlord, for the penalty, should the tenant go to court to claim this.
              The reasoning is not explained, though, and to me it seems inconsistent with LTA Section 3 as quoted above.
              There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

              Comment


                #8
                Originally posted by jpkeates View Post
                Section 3 of the Landlord and Tenant Act 1985 determines this, I think.

                "The person who was the landlord under the tenancy immediately before the assignment (“the old landlord”) shall be liable to the tenant in respect of any breach of any covenant, condition or agreement under the tenancy occurring before the end of the relevant period in like manner as if the interest assigned were still vested in him"
                You have missed out the continuation: "and where the new landlord is also liable to the tenant in respect of any such breach occurring within that period, he and the old landlord shall be jointly and severally liable in respect of it." The Act would seem to make the new landlord liable.

                Comment


                  #9
                  Originally posted by Lawcruncher View Post
                  You have missed out the continuation: "and where the new landlord is also liable to the tenant in respect of any such breach occurring within that period, he and the old landlord shall be jointly and severally liable in respect of it." The Act would seem to make the new landlord liable
                  I didn't include that section, because it added to the length of the quote and doesn't add very much to it's relevance here.

                  It applies to "the period" between the tenancy being assigned and any section 3 notification confirming this to the tenant.
                  So, unless the seller sold the property within 30 days of receiving a deposit which they failed to protect, no failure to protect could occur "within that period".

                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    Originally posted by doobrey View Post
                    The reasoning is not explained, though, and to me it seems inconsistent with LTA Section 3 as quoted above.
                    It could be that the wording "any covenant, condition or agreement under the tenancy" doesn't include the legislation relating to deposits, which is arguably not "under" anything.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Originally posted by jpkeates View Post
                      It could be that the wording "any covenant, condition or agreement under the tenancy" doesn't include the legislation relating to deposits, which is arguably not "under" anything.
                      Indeed. Some agreements do though impose an obligation to protect the deposit.

                      Comment


                        #12
                        Originally posted by Lawcruncher View Post
                        Indeed. Some agreements do though impose an obligation to protect the deposit.
                        Which would create the possibility of a contractual claim for loss if there's a breach.
                        But non-compliance with contract terms can't trigger a penalty under the Housing Act 2004.

                        And I'm not entirely sure what value there is in a contract term that is, essentially, you must comply with the law.
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment

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