Since 6th April 2007, deposits MUST be submitted to or be insured with, an approved body. If the tenant initially moved in before 6th April 2007 and has signed a NEW tenancy agreement AFTER 6th April 2007, this must be dealt with as above.
If you have not complied with the legislation you cannot use a Section 21 Notice. Additionally, the courts can award the tenant THREE TIMES THE AMOUNT OF THE DEPOSIT, PAYABLE BY THE LANDLORD TO THE TENANT!!!!
UPDATE 1/3/11 – A NEW COURT OF APPEAL DECISION APPEARS TO REMOVE THE NEED TO COMPLY WITH THE DEPOSIT PROTECTION LEGISLATION SO YOU CAN STILL ISSUE A S21 NOTICE. PLEASE HIT THE BACK BUTTON, ANSWER “YES” TO “Has the deposit been dealt with in line with Deposit Legislation” AND PROCEED TO CREATE A S21 NOTICE BUT ENSURE YOU NOW PROTECT THE DEPOSIT BY COMPLYING WITH AN APPROVED SCHEME