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Tenancy Deposit Protection: the end of the line?

Hot on the heels of the High Court judgment in Draycott v Hannells Letting Ltd [2010] HLR 27 and of the Court of Appeal (CA) ruling in Tiensia v Vision Enterprises Ltd [2010] EWCA Civ 1224,

the last few months have seen two further decisions handed down in courts of record which have yet further eroded the protection afforded to tenants by sections 212 to 215 of the Housing Act 2004.To recap, in Draycott, Tugendhat J held that where a landlord fails to protect a tenancy deposit within 14 days of its receipt but nonetheless secures it within the custodial scheme for tenancy deposits before the tenant issues his claim for the penalty of three times the value of the deposit (see s.214(4), then the landlord has complied with the "initial requirements" of a scheme (see s.213(3)) and the tenant is no longer entitled to the penalty award. In Tiensia, the CA approved the judgment in Draycott, and held that any attempt by a scheme manager to impose rules on landlords which were stricter than those set out in the statute was of no effect and further held that the landlord had until the day of the hearing of the tenant's application for the triple deposit penalty to comply with the initial requirements of a scheme. The tenant's only remedy in such circumstances would lie in costs.

In Potts v Densley & Pays [2011] EWHC 1144 (QB), the defendant landlords had secured the deposit sum within the custodial scheme 4 days after the claimant tenant issued her claim for the triple deposit penalty and 2 days after the tenancy to which the deposit was connected, had come to an end.

At first instance both parties appeared in person. The circuit judge held that there had been a breach of the provisions of s.213 of the 2004 Act, but considered that the breach was minor, of a technical nature and had been contributed to by the tenant's lack of co-operation (she had refused to allow the landlord to return the deposit to her). Accordingly the judge refused to make the orders provided for under s.214. The tenant then sought legal advice, and permission to appeal was obtained.

The appeal was listed for hearing after the decision in Tiensia was handed down, and accordingly the landlords sought to argue that, in light of that decision, the judge's decision should be upheld on other grounds. It was therefore common ground before Sharp J that the trial judge had wrongly purported to exercise a discretion to refuse to make the orders under s.214, a discretion which the statute did not afford her. The issue was whether a landlord can protect a deposit and thus comply with the initial requirements of a scheme after the relationship of landlord and tenant has ended.

Sharp J held that the deposit could be protected after the tenancy had come to an end. She pointed to Schedule 10 to the 2004 which deals with the position where, after a tenancy ends, either the landlord or the tenant cannot be found. That schedule uses the words "landlord" and "tenant" to refer to the parties without adding the words "former", or "ex-". Accordingly, it was held that the meaning of the words "landlord" and "tenant" in sections 212-215 of the Act should not be restricted to their status when the tenancy is still in force.

In Hashemi v Gladehurst [2011] EWCA Civ 604 the tenancy deposit was never registered or secured with any approved scheme. The tenant issued his claim under s.214 some 4 months after the tenancy had come to an end and the property had been vacated. The district judge who first dealt with the matter struck it out on the grounds that the provisions of s.214 no longer apply after the tenancy comes to an end. On appeal the circuit judge restored the claim under s.214 and gave judgment for the tenant. The landlord appealed to the CA.

The CA noted that none of the internal rules of the three tenancy deposit schemes permitted registration of a deposit after the tenancy has ended. Accordingly, once a tenancy has ended the landlord cannot as a matter of fact comply with the requirements imposed by section 213. (In Potts, the custodial scheme had accepted the deposit in error, not appreciating that the tenancy had ended.) Patten LJ giving the judgment of the Court noted the use of the word "tenant" in Schedule 10 to the Act but held that, in relation to s.214, the word "tenant" should be held to mean "current tenant". Accordingly, because the claim had been issued at a time when Mr Hashemi was no longer a tenant, his claim should be dismissed.

The net result of these decisions is that awards under s.214 will become extremely rare. They will only succeed where the tenant issues his claim at a time when the landlord & tenant relationship is continuing. Many tenants however will only find that their deposit has not been protected (and potentially has been dissipated) after the tenancy has come to an end and they are asking for its return. Further, even where the tenant issues his claim in time it will only be the most obtuse landlord who fails to protect the deposit before the claim comes on for trial.

Three issues remain outstanding. Firstly, there is the possibility of an appeal to the Supreme Court in Hashemi, or indeed a leapfrog appeal from a matter currently awaiting judgment in the High Court on similar facts to those in Hashemi. It is the writer's view that such an appeal ought to have reasonable prospects of success. Secondly, there remains unanswered the issue whether a repayment of a deposit by the landlord to the tenant also frustrates the provisions of s.214 - whether the Court must be in a position to make one of the orders under s.214(3), i.e. paying the deposit into the custodial scheme or back to the tenant, in order then to go on to make the triple deposit penalty award. Finally, at the committee stage of the Localism Bill an attempt was made to introduce amendments to the 2004 Act to make landlords liable as from day 15 after the deposit was received. These amendments were objected to by the Government, but it is entirely possible that alternative, Government-sponsored amendments may eventually make their way into law. Whist the effect of the current Act may have been eviscerated (due largely to poor drafting; and to non-existent scrutiny as it passed through Parliament) we have not yet heard the last of this issue.

James Browne appeared for the appellants in the Draycott and Potts cases.

James Browne / 2nd Jul 2011


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