Returning A Deposit to Serve Section 21
Where a deposit has not been protected within 30 days of being received, the only way section 21 can be served is by returning the deposit in full to the tenant or agreeing on deductions.
In this article, we summarise cases about the return of a deposit and outcomes. Of all the cases, the first one below is made by the High Court, but it was a permission to appeal the decision and not an actual binding case (but being High Court is arguably persuasive).
Returning by cheque
Lingfield Point No. 2 v Hodgson High Court (Queen’s Bench Division) Sheffield District Registry, 30 July 2015
The tenant paid a deposit of £375 in connection with an assured shorthold tenancy commencing from 21 May 2012.
The deposit was paid by cheque (which is an important point, as will be seen later). The landlord failed to protect the deposit. As the deposit had not been protected, the landlord had to return the deposit in full before serving a section 21 notice, and a cheque for the £375 was posted to the tenant on 28 July 2014.
The tenant’s solicitor returned the cheque, saying that paying by that method was unacceptable.
The cheque was never presented. On 31 July 2014, the landlord served a section 21 notice. The tenant defended the possession claim, saying that the deposit had not been returned before the service of the notice and, therefore, was invalid.
The first County Court held that the cheque payment was adequate for returning the deposit and ordered possession. The tenant sought permission to appeal, which was refused by the High Court, stating that the provisions were there to protect tenants, but they could not be used as a blunt instrument to defeat landlords' interests.
The tenants had indicated that payment by cheque was acceptable because when they originally paid the deposit, it was by cheque.
As such, there was no real prospect of success if an appeal were allowed.
Gul v Bilal, Stratford Hearing Centre, 18 October 2021
In contrast to the above case, this County Court decision considered the position of a cheque being left with a tenant at the tenancy address. In January 2020, the landlord attended the tenancy address and left a cheque for the deposit amount on the kitchen table. In June 2021, the landlord served a section 21 notice on the tenant. In the subsequent possession proceedings, the tenant defended, saying that the cheque from January 2020 had not been accepted, and it was common ground that the cheque had never been cashed. As such, the deposit had yet to be returned.
The County Court agreed that the deposit amount had not been fully returned, and section 21 was invalid.
Authorising return by a deposit scheme
Ahmed v Shah, Bradford County Court. June 2015
Link to NearlyLegal note. The tenant was granted an assured shorthold tenancy from February 2014, for which a deposit of £600 was paid. The deposit was protected on 12 August 2014 (not within 30 days), and no prescribed information had been given. Although slightly unclear, it looks like the landlord authorised the DPS to repay the deposit to the tenant in October 2014. But, the tenant did not accept the deposit from the DPS.
In October 2014, the landlord served a section 21 notice and commenced proceedings in February 2015. The County Court stated that there wasn’t any evidence that the full deposit was available for repayment via the DPS.
The emails from the DPS did not specify that the full deposit was being offered to be repaid. The court held that the deposit had not been returned and that section 21 was invalid.
In this case, the landlord had also sent the tenant a cheque for £600 in June 2015 (after service of the section 21 notice). It was held that a cheque could not be retrospectively sent for the deposit.
Chalmiston Properties Ltd v Boudia. Barnet County Court, 27 October 2015
Link to NearlyLegal note. There was an assured shorthold tenancy from 2008 for which the tenant had paid £780 as a deposit. At some point, the deposit had been protected with the DPS scheme, but prescribed information had never been given. On 10 February 2015, the landlord authorised the release of the full deposit back to the tenant.
On 12 February 2015, the DPS contacted the landlord, saying that the deposit was being released. The landlord served a section 21 notice, which was deemed served on 12 February 2015. On 16 February, the deposit being returned by the DPS was paid into the tenant's account. In possession proceedings, the tenant defended the claim that the DPS had not made payment until 16 February. As such, the notice on 12 February was served before the deposit was returned in full to the tenant.
The possession claim was dismissed.
Yeomans v Newell, Canterbury County Court, 25 May 2016
An AST was granted to the tenant in 2011 when £300 towards the deposit was paid. This deposit amount was protected with the DPS custodial scheme in November 2015.
On 22 December 2015, the landlord authorised the deposit to be returned in full to the tenant. On 23 December 2015, the landlord served a section 21 notice on the tenant. The tenant received the funds from the DPS on 19 February 2016. The notice was served before the tenant received the funds but after the landlord authorised its release.
The tenants defended the subsequent possession claim by saying that the deposit amount had not been returned to them as of the date of serving the section 21 notice, and therefore the notice was invalid.
The court disagreed and ordered possession, saying that the authorisation made on 22 December 2015 was sufficient as the deposit money was available for the tenant from that date before the service of the section 21 notice.
As can be seen from all the above, if a return of the deposit is required to serve section 21 it’s best to ensure the deposit has been fully returned before serving notice. Anything less could result in the notice being held invalid.
Agree to deductions
One option is to agree to deductions (such as offsetting rent arrears), but this would need to be a written agreement (confirmed email or similar would suffice) in case the agreement is required to be relied upon.
We have a template for agreeing to deductions here.
If returning by cheque, the best advice is for the landlord to wait until it’s been cashed before serving a section 21 notice. The only exception might be if there is an agreement or implied agreement to accept payment by cheque. An example of an implied agreement might include if the deposit was initially paid by cheque or if the rent is regularly paid through a cheque. Even then, we would prefer to wait and see if it’s cashed before serving.
Where a cheque has been given, accepted by the tenant, and cashed, repayment of the deposit will be from the date the cheque was delivered, not the date it was cashed Coltrane v Day (2003) EWCA Civ 342.
Cash is risky because it could be denied that it was given and could be challenging to prove. A written receipt for the money confirming the deposit has been repaid in full would be needed.
Postal order/bankers draft
A postal order has been our recommendation in the past. But we’re not sure if even a postal order could be returned as not being accepted.
Payment into bank
If the landlord has the tenant's bank details (which a good application for accommodation form would have asked for), this might be the best solution for returning a deposit in full. It would be an instant transfer of cash. A letter or email confirming the date, amount and that it’s the “deposit repaid in full” should be sent at the transfer time.
Initiating returns via a deposit scheme
Where the deposit was protected after 30 days and is initiated to be released to the tenant, a letter or email would need to be sent at the time of release explaining it’s the deposit “being repaid in full”.
However, section 21 can only be served once the landlord is sure that the tenant has physically received the funds from the deposit scheme.
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View Related Handbook Page
Deposits and Tenancy Deposit Schemes
Many landlords take a deposit from tenants to hold for the duration of the tenancy. When the tenant moves out, this is returned to the tenant less any deductions permitted: typically for damage (above fair wear and tear), additional cleaning, and cover any outstanding rent. Note: deposits can only be withheld if stipulated what the deposit is being held against in the contract.