Landlords often seek to return a tenancy deposit before serving a section 21 notice when there are concerns about compliance with the relevant deposit protection requirements. Non-compliance with deposit protection requirements can invalidate a section 21 notice and returning the deposit can be an effective way to mitigate the risks.

A standard tenancy agreement will usually specify the agreed method of payment for rent and for the tenancy deposit. However, there is no standard clause dealing with acceptable methods for repayment of the tenancy deposit to the tenant. In most cases, this is not an issue as parties just communicate about the repayment arrangements and nowadays deposit repayments are usually made by bank transfer for ease and speed. However, it also remains common practice for landlords to try and return a tenancy deposit by cheque. This often happens when there has been a breakdown of communication between the parties. 

Posting a cheque for the deposit amount to a tenant may be problematic for a section 21 notice possession claim. Unless a landlord gets confirmation from their bank that the cheque has been cashed before they serve a section 21 notice, there is a risk that the deposit may not have been validly returned. Especially because the law is unclear.

 This very issue was considered recently on appeal to the County Court at Central London by His Honour Judge Luba KC in the case of Richworth Limited v Derek Billingham [2023] EW Misc 8 (CC). No definitive answer was provided to the question of whether a return by cheque is valid or not, however, HHJ Luba KC provided some clarity about the relevant factors when considering this question in each case. The answer will depend on the particular facts of the case.

In the case of Mr Billingham, HHJ Luba KC found that the deposit had not been validly returned before the section 21 notice was served on him. A cheque had been sent to the tenant on 26 April 2022 and a section 21 notice was served on 6 May 2022. There was a bank holiday in between these two dates. The landlord had checked with its bank whether the cheque had been cashed before serving the section 21 notice and the landlord had failed to consider that there had only been a few working days between sending the cheque and serving the notice. The landlord “was therefore taking a chance as to whether and when the tenant had discovered the cheque and whether and when he would accept payment by cheque (or would be treated as having done so).” 

In his judgment, HHJ Luba KC provided some helpful guidance:

• The requirement in the legislation was for the landlord to return the amount of money of the deposit. In this context “return” means the same as “repay”.
• A deposit may be returned by cheque.
• A valid return by cheque may be due to an express agreement between the parties.
• A valid return by cheque may also result from the tenant’s failure to reject the repayment within a reasonable time. However:
• “non-communication of non-acceptance” is not determinative by itself;
• the relevant prior dealings between the parties about payments and receipt of monies are also relevant; and
• the length of time which passes between the tenant’s receipt of the cheque and the service of the section 21 notice will also be considered.

Should landlords return tenancy deposits by cheque? No.

Without an express prior agreement with the tenant or confirmation from the landlord’s bank that a cheque has been cashed, serving a section 21 notice in reliance on an uncashed cheque is a risky strategy and it may result in unsuccessful possession proceedings.

That said, tenants should not rely on their failure to present a cheque to their bank as a certain defence to a possession claim. HHJ Luba KC found against a tenant on this issue in a different case not long ago.

 Landlords are advised to take adequate legal advice before serving a possession notice to minimise the risk of the whole claim collapsing months (or even years) down the line at trial. Setting off on the right foot is of particular importance in light of the ever-increasing County Court delays which make the potential cost of a defective possession claim even higher both in time and legal fees.