Tenancy Deposits - Landlords and Agents Beware
The Housing Act 2004 (specifically sections 213 and 214) was heralded by tenant’s bodies, tenants and charities alike because, for the first time, the government was stamping down on unscrupulous landlords. No longer, it was assumed, could landlords refuse to return a tenant’s deposit on spurious grounds, and, if there was a dispute regarding the deposit it could be adjudicated through an approved scheme such as the Tenancy Deposit Scheme.
The Act seemed clear that if landlords failed to comply with the requirements of the statutory regulations, they would have to pay a penalty fine of 3 times the amount of the deposit plus the deposit itself.
All seemed well for the protection of tenants…
Unfortunately, whilst the majority of practitioners read the statute in the only way it seemed capable of being read, the Court of Appeal saw it differently (in the cases of Gladehurst Properties Ltd v Hashemi, Draycott & Draycott v Hannells Letting Limited, Tiensia v Vision Enterprises Ltd (t/a Universal Estates) &_Harvey v Bamforth)
As a result, and in the flick of a switch, the protection for tenants from unscrupulous landlords was gone…
Until now.
Localism Act 2011
The Government have fought back and the Localism Act 2011 is set to, from April 2012, reverse the decisions of the Court of Appeal. As a result, the obligation to properly protect and secure tenant deposits and provide the Prescribed Information has been put back squarely at the door of the landlord or their letting agent and a failure to comply shall have serious consequences.
The Localism Act is unlikely to greatly affect those landlords who were already complying with the spirit of the Housing Act 2004. That having been said, some of the rules imposed on landlords have changed and therefore agents and landlords alike must familiarise themselves with the new rules, summarised below.
For those not already complying, they must now do so because they shall be unable to hide behind the aforementioned court rulings to escape liability.
The main legislative changes are as follows:
Landlords shall have 30 days after receipt of the deposit to:
- Comply with the initial requirements of the scheme be that MyDeposits, Tenancy Deposit Scheme or Deposit Protection Service;
- Register the deposit; and
- Provide the tenant(s) and any relevant person with the Prescribed Information.
- The tenant can bring a claim after the tenancy has ended (thus reversing a Court of Appeal ruling in Gladehurst Properties v Hashemi);
- The penalty will be payable if the Landlord fails to comply with the time limits imposed by statute, i.e. within 30 days of receipt;
- The Landlord can not avoid liability for the penalty by complying with the requirements of the Deposit Scheme just before the matter goes to trial (thus reversing the Court of Appeal decision in Tiensia v. Vision Enterprises Limited);
- The amount of the penalty will be at the Court’s discretion but no more than, in total and including the deposit, three times the amount of the deposit.
- No Section 21 Notice (for the recovery of possession) can be relied on if the deposit has not been protected and all the Prescribed Information given to the tenant within 30 days of the money being received unless:
He first returns the deposit to the tenant in full or with such deductions as the tenant agrees; or
If the tenant has taken proceedings against him for non-protection and those proceedings have been concluded, withdrawn or settled.
The amendments to the rules regarding the service of Section 21 Notices is a very severe penalty for landlords and letting agents alike who rely on the ability to remove tenants in situations where they are in breach of their obligations under the tenancy agreement, in particular, the obligation to pay rent. Indeed, this sanction may be more serious a threat to landlords than the potential penalty they must pay to a claimant tenant.
Landlords should also be aware that the value of tenancy to which a landlord is obliged to protect the deposit has significantly changed from a yearly rental value of £25,000 to a yearly rental value of £100,000.
It is therefore vital that landlords and letting agents comply with the rules because a failure to do so may have serious ramifications.
Disputes between Landlord and Letting Agent
A tenant has the option of suing the landlord or the letting agent in the county court for the recovery of the deposit/ a penalty under the Localism Act. Therefore, it may be that landlord becomes liable for the penalty when the fault for the failure to register lies squarely with the letting agent.
Letting agents and landlords should ensure that their obligations, including such matters as who is to register the deposit, are clearly set out in a written agreement. Where there is no such express provision the court will have to determine whose obligation it was from the available evidence such as:
- Previous conduct of the landlord and letting agent;
- Other documentary evidence such as emails or correspondence between the parties;
- Oral Evidence;
- Custom or Trade practice; and
- Who physically received the deposit.
Whilst the court’s consideration of these facts may achieve the “right” outcome for one of the parties, the reality is that the parties should not leave it to chance because, whilst one party may go away happy, it is likely to cost many thousands of pounds and a great deal of time and resource to get to that outcome.
For further information about this article, or advice on landlord and tenant issues, please contact Tom Maple on 01865 781070 or thomas.maple@henmansllp.co.uk.