How to proceed with legal dispute over unprotected tenancy deposit

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    How to proceed with legal dispute over unprotected tenancy deposit

    I bought a student HMO in January 2018 to add to my portfolio. The property was already tenanted for the next year, and I was informed by our legal advisor at the time that their already protected tenancy deposit would be transferred into my name. One tenant change occurred when the year ended, and a new tenancy was created to include my and their details.

    After the tenancy ended in June 2019, I was contacted by the lead tenant to request back the deposit for all the tenants. I realised that I only had the controls to release the deposit for the one new tenant. I contacted the advisor, who said that the former property owner had never transferred the deposit to my name. I didn't tell the tenants this straight away as I was well aware this meant their deposit wasn't protected for the whole year and could open me up to some trouble, leading them to become demanding and saying they would open a dispute with the TDS. They also threatened legal action, which I just thought was an intimidation attempt.

    They opened this dispute, and I was contacted to confirm details and asked my side. I did not admit to knowing the deposit was not protected. Since the named LL on the TDS certificate was the old LL, I assumed they would go after him instead of me. This was occurring around August and September, after which I heard nothing more about it from them.

    Yesterday, I received a letter from the county court saying that I have been summoned to court in the new year due to not protecting the deposit for the last year. Since I was not responsible for this I have no intention to settle. Would it be also worth thinking about counterclaiming for my legal fees since I was not responsible for this and it was their first LL's fault?

    When the purchase completion took place, you received the deposit.
    From that point, you had 30 days to protect it and serve the new Prescribed Information.
    If you didn't do that you are going to lose the claim.

    You don't sound like you have returned the deposit to the tenants (although I'm possibly misunderstanding that), in which case I suspect the penalty will be at the upper end of the scale.

    And, no, I don't think counterclaiming for your fees is a good idea - if you win the case, the costs would be at the discretion of the court in any case.

    You may have some claim against the previous landlord for not transferring the deposit to you - although it's a tough claim because it isn't actually your money.

    You may have some claim against the "advisor" for completing the purchase without making sure all the necessary transfers had been made.
    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).


      This is quite a readable article

      Was the deposit protected in a custodial scheme or an insurance backed one? Has it been returned to tenants? What do terms of scheme say about transfer of deposits (if anything) when property sold with sitting tenants?

      If the deposit has not been returned, then I would make doing that your priority. Your gripe is not with your tenants, but with the conveyancer who acted for you in the purchase.


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