More Trouble with Deposits

You will remember that there has been a lot of fuss about the protection of the deposits paid to landlords of Assured Shorthold Tenancies. This matters because it is far and away the most common form of tenancy in the private rental sector and is growing all the time.

Before 2007 there was no protection. Landlords could do what they wanted with a deposit, and if the tenant reckoned they were entitled to have it back they had to sue in the County Court, and then, if successful, enforce it out of the landlord, which was not easy, and, given the relatively small sums at issue, and the financial state of many tenants, often they didn’t bother.

All changed in March 2007 when the Housing Act 2004 set up a compulsory scheme for protection by either paying the deposit to a prescribed body or taking out insurance with an approved scheme. each of these included an arbitration system to determine who was entitled to the deposit at the end of the lease, at no cost to the tenants. The deposit had to be protected within 14 days, and if it wasn’t the tenants were entitled to recover the deposit in full, plus 3 times the deposit as a penalty, and the landlord couldn’t serve a s 21 notice while they were in breach.

Unfortunately the initial legislation was badly drafted, potentially very unfair to landlords, who may have to pay large penalties for trivial errors, and the courts found it to have lots of holes, as shown by a series of cases that ruled that a landlord was not at risk of penalties if he protected the deposit by the day of the court hearing (Tiensia v Vision Enterprises) or if the tenancy had ended (Gladehurst v Hashemi). These were largely corrected by the Localism Act 2011 and the present position is:

  • Landlords have 30 days to protect the deposits instead of 14 days as before,
  • Courts have a discretion to pay between one and three times the deposit as a penalty,
  • If the deposit is not protected in time late protection won’t stop the penalty, and won’t let the landlord serve a s21 notice until he repays the deposit, or concludes the tenant’s court action,
  • Ex-tenants can make claims unless their deposits have been returned to them.

This all took effect from 6th April 2012, and covered all AST deposits taken since March 2007.

Ayannuga v Swindells (2012)

The real interest is to see whether the courts are now prepared to enforce the new regime. The indications are that they are. In Ayannuga v Swindells (2012) CA (Civ) 6 November 2012 the CA held that although the deposit had actually been protected the landlord had failed to serve the prescribed information (under the Housing (Tenancy Deposits) (Prescribed Information) Order 2007). The landlord argued that all this information was available from the scheme’s administrator or on their website, and so this was just a technicality.

The CA disagreed, taking the view that the whole scheme including the dispute resolution was important and that the tenant was entitled to know about it. So they awarded the tenant the full relief of return of the deposit and 3 times the deposit as a penalty, plus no doubt very significant costs.

They also apparently commented (the report is not yet on Bailii) that if there was a doubt on the validity of the notice it should be determined following the test in Ravenseft v Hall: is the notice to substantially the same effect in telling the tenants of their rights etc under the scheme.

There was a similar result in the HC case of Suurepere v Nice, and the moral is clear: these things matter. A landlord must therefore:

  • protect the deposit within 30 days; and
  • serve the prescribed notice on the tenant; and
  • be able to prove that they have done both.

Otherwise the tenant can resist a s 21 Notice claim, and use it as a counterclaim to reduce any money claim, or to resist a possession claim based on say arrears of rent.

Scotland catches up

This blog doesn’t cover Scottish law. But you might like to know that from 13th November 2012 there is very similar legislation on protecting deposits in force in Scotland. It is in fact stricter as landlords have to be registered with their local authorities at the time that they take the deposit. For a brief guide see http://www.property118.com/index.php/tenancy-deposit-protection-deadline-for-scottish-landlords/33510/

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Author: Coventry Man

A perspective from a litigation lawyer in the Midlands. After many years in Coventry I am now with David Lee Solicitors in Kenilworth, helping people with all sorts of litigation, especially property and landlord & tenant problems.

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