Can landlords return a deposit by cheque?

Before issuing a Section 21 notice, it may be necessary to refund the deposit to the tenant to avoid serving an invalid notice and potential complications when filing a claim. Situations that may require the deposit to be returned include incorrect registration of the deposit or if the deposit amount surpasses any relevant deposit cap.

All parties will usually communicate to establish the best method of repayment, usually bank transfer is the most convenient and quickest way to refund a deposit.

However, if a tenant refuses to communicate, some landlords choose to return the deposit by sending a cheque to the tenant.

However, sending the tenant a cheque for the deposit amount could cause issues if the tenant files a defence to the Section 21 notice possession claim. A landlord runs the risk of the deposit not being properly refunded unless they have proof from their bank that the cheque has been cashed before serving the Section 21 notice.

In the matter of Richworth Limited v. Derek Billingham [2023] EW Misc 8 (CC), His Honour Judge Luba KC heard an appeal to the County Court at Central London on this very topic. HHJ Luba KC determined that the deposit in Mr Billingham’s case had not been lawfully refunded prior to the service of the Section 21 notice. On 26th April 2022, a cheque was provided to the tenant, and on 6^th May 2022, the Section 21 notice was delivered.

The period between these two dates included a Bank Holiday and the landlord failed to consider that there had only been a few working days between sending the cheque and delivering the Section 21 notice.

By not knowing for sure whether the tenant had found the cheque or when, the landlord “was taking a chance” as to whether and when the tenant had received the cheque and whether the tenant would accept payment by this method.

The appeal was allowed and the possession order set aside.

There is a clear risk for landlords serving a Section 21 notices based on an uncashed cheque that their claim for possession could fail unless there is clear previous agreement with the tenant or evidence from the landlord’s bank that a cheque had been cashed.

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