Tenancy Deposit Protection - First High Court Decision

[lawdoctor]

Sometime last year when I visited this forum using a different pseudonym I was in the round, as I still am today, in praise of the good work and value that the forum had for many. However, I was very aware that there was a small element of member 'experts' who were portraying their limited legal knowledge way beyond the true level of its value as I viewed it.

 

I realised then that if I left the spell checker off and deliberately paid no regard to grammer or layout etc the forums groupie experts would engage me with their legal knowledge of the law which was often portrayed as fact. When I replied to posts using my normal acquired style and addressed the law with which I have had a love affair for over 30 years both professionally and these days as a hobby I found that these same experts were reluctant to engage in debate.

 

This I personally found to be rather sad as when I was cutting my legal teeth if a day went by when my then mentor did not turn my face red I felt that it was a day when I had advanced very little.

 

You state that forum members are sometimes just retelling other peoples reported experiences, this of course is fine and one of the many things that makes it such a great site. However, as I have witnessed some of this 'retelling' is often regurgitated and portrayed as legal fact. This of course could be dangerous to the very many who just view this site to perhaps gain some knowledge to assist in their own circumstances. Although the site team do a good job they cannot monitor some of the downright misleading legal statements portrayed as fact and not opinion.

 

For my part I am merely passing through and would be unlikely to visit again for some time.

 

So when I was choosing a new name for this current fleeting visit I could not resist the name "Lawdoctor" from where I was sitting some of the legal statements being bandied about as legal fact to me appeared to be legally unwell and in need of some legal medicine from the visiting locum - "Lawdoctor".

 

I may not be a legal surgeon but I hope that I have, in my forthright approach, lent something to this forum, if I have then I am glad - if I have not then the person who says so can expect a cyber writ from me as I consider cyber liable to be actionable!!

 

So to avoid the need to engage in costly complicated litigation I decline Steve M's invitation to state my experiences as this would be likely to unmask me to my former collegues!!

 

Yours in kind reply

 

Lawdoctor!

Edited February 2, 2010 by lawdoctor

[Steve__M]

lawdoctor. I suggest you try swarb.co.uk which *is* a legal discussion site. Let me know if you do, because I'll enjoy watching the fireworks

[lawdoctor]

Hi all

 

Just thought that while we are waiting for the judgment in the first binding High Court decision on the tenancy deposit legislation contained in the Housing Act 2004 sections 212-215 I would provide you all with some brief background history of the case in question.

 

As you will be aware from this post the judgment in the case which has now been concluded has been reserved - cuna advisari volt (the court wishes to consider the matter).

 

Background;

 

Hannells Letting Limited of Derbyshire (nine offices) let a property to Draycott in February/March of 2008. A deposit of £2700 was paid on the 4th March 2008 and the deposit was protected on the 19th March 2008.

 

Draycott subsequently brought proceedings against Hannells Ltd for 3x the deposit penalty for failure to register the deposit within the 14 days as is prescribed in the tenancy deposit legislation.

 

In the following County Court case the District Judge found in favour of the claimant (Draycott) and held the 3x penalty applied for late registration and in addition the letting agent defendant (Hannells) was liable for the penalty as he viewed the legislation.

 

That is the decision that Hannells is appealing to the High Court.

 

Those of you who are numerically awake will note from the above that the deposit was registered albeit one day outside the 14 day statutory time period.

 

So the question before the High Court is does the 3x penalty bite strictly on failure to register the deposit within the 14 day time period and if so does it apply as in this case to the letting agent?

 

As a point of interest, one of the arguments put forward in both the County Court and the High Court was that on reading the legislation of which we speak Hannells (defendants and presumably their legal advisors) were of the view that so long as a deposit was registered prior to court proceedings the 3x penalty should not be imposed.

 

As regular readers and contributors to this forum will know, this thinking/interpretation has been upheld in a number of County Court cases. I for one find little sympathy or reasoning in law to support such a view which if allowed would in my humble view render the legislation toothless, of avoidable effect and thus legally redundant.

 

Surely this could not have been the intention of parliament when this badly drafted peice of legislation was being debated and placed on the statute books.

 

Any views all?

 

Lawdoctor

[MrShed]

As a point of interest, one of the arguments put forward in both the county court and the High Court was that on reading the legislation of which we speak Hannells (defendants and presumably their legal advisors) were of the view that so long as a deposit was registered prior to court proceedings the 3x penalty should not be imposed.

 

Its important to note the letter of the law in the Housing ACt 2k4.

 

(2) Subsections (3) and (4) apply if on such an application the court—

(a) is satisfied that those requirements have not, or section 213(6)(a) has not, been complied with in relation to the deposit, or

(b) is not satisfied that the deposit is being held in accordance with an authorised scheme,

as the case may be.

(3) The court must, as it thinks fit, either—

(a) order the person who appears to the court to be holding the deposit to repay it to the applicant, or

(b) order that person to pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme,

within the period of 14 days beginning with the date of the making of the order.

(4) The court must also order the landlord to pay to the applicant a sum of money equal to three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order.

 

213 6 a reads:

 

(6) The information required by subsection (5) must be given to the tenant and any relevant person—

(a) in the prescribed form or in a form substantially to the same effect, and

 

213 6 b refers to the 14 day timescale, BUT THIS IS NOT INCLUDED OR REFERRED TO IN 214.

 

Therefore, toothless - yes. Redundant - yes. Is this argument justified, and in my opinion completely correct - unfortunately, yes.

 

Clearly not as was originally intended, but nevertheless, that is the outcome.

[MrShed]

There is of course a school of thought stating that not only is this legally correct, but morally as well.

 

Has the tenant lost out by having the deposit protected later? No - he has only lost out if the deposit is not protected at all prior to termination of the tenancy.

 

Therefore, it is arguably a bit much that such a breach in the legislation (i.e. late protection) results in such a disproportionate fine, given that the actual loss to the injured party is...zero.

 

 

I would probably go further and say that the 3 x deposit fine is draconian in its entirety - seeing as how it sets a precedent in civil law for damages to be paid to the injured party, set out in statute, that is complete disproportionate to actual loss.

 

The legislation should demand return of deposit plus costs, and PERHAPS a small punitive damage amount (to be decided on a case by case basis).

 

This legislation is so full of holes, so ambiguous and so against the grain of traditional civil law, I never fail to be astonished by the fact that it got through in its current state.

[Steve__M]

The legislation prescribes that landlords protect the deposit and provide the tenant with information within 14 days. But the legislation does not specifically link the 3x penalty to the 14 day deadline.

 

What the landlord *has* to do is meet the *initial requirements* of the scheme. The 3x penalty applies if he does not do this.

 

Therefore, if the scheme chosen by the landlord has an initial requirement that the deposit must be protected within 14 days, then the landlord is potentially liable. If not, then the landlord may not be liable.

 

In one case, a judge took a view that because the scheme had accepted the deposit it must have, by definition, met the "initial requirement" (I'm assuming that correct information had been given when the deposit was protected) and no penalty was given.

 

We had an example on this forum where TDS (I think) have an "initial requirement" that the tenancy contract must include certain clauses as prescribed by TDS. A landlord protected a deposit within 14 days, but did not include the clauses. TDS refused to get involved in a deposit dispute. This meant the tenant managed to sue for the 3x deposit (StuzaTheGreat).

 

I searched hard for the DPS "initial requirements" once, and didn't find any.

 

The three schemes could get together and agree on "initial requirements" that were equitable. Eg. I don't believe an off-shore landlord should be allowed to use the insurance based schemes as even if you win, you can't get your money back easily.

 

The question I would ask is: Which scheme did Hannells use?

[lawdoctor]

Here it comes guys and gals!!

 

Lawdoctor

 

 

Decision in High Court TDS Case

 

We have been informed that a decision in relation to the High Court case of Draycott v Hannells Lettings is to be handed down tomorrow (Friday 11 February 2010).

This is a case relating to Tenancy Deposit Protection in which PainSmith has been acting for Hannells. It represents the first binding decision in relation to this area.

 

 

 

 

 

 

4 Votes

 

Edited February 11, 2010 by lawdoctor
To avoid breaching sex discrimination protocol - guys and gals!

[MrShed]

PainSmith are acting???? Interesting.

[lawdoctor]

MrShed,

 

Please would you share with me what is so interesting regarding PainSmith solicitors who act for Hannells in the High Court case in question?

 

Just curious........!

 

Lawdoctor

[MrShed]

Just as they are highly regarded in the field...if anyone is going to make good argument in the case, I would imagine it would be them.

[lawdoctor]

I see, and I agree. They have been referred to in the trade as 'hotshots' in their field .... a sort of Smith & Wesson one might say!

[wisden123]

In short a victory for late complying landlords:

 

High Court decision on TDP Painsmith Landlord and Tenant Blog

[Steve__M]

So they agree with my analysis!

 

It is now down to the three deposit protection schemes to come together and agree a set of common minimum "initial requirements" that landlords and agents *must* meet, and that are completely straightforward. These conditions should be advertised front and centre on their websites.

 

The schemes have now been operating for 3 years, so they ought to be able to work out requirements that close loopholes that let landlords evade the law while not being too draconion on landlords or agents who are honest but sometimes disorganised.

[MrShed]

I agree absolutely 100% with the judges reasoning and decision.

 

On all three points they are spot on, and back up the opinion I have been stating for months.

 

So for absolute clarification, this is now legal precedent?

[MrShed]

This needs to be stickied - contacting a mod. Of critical importance moving forward.

[wisden123]

It's legal precedent for a short while, so county courts are bound to follow it, unless you can distinguish your case from it. There are cases coming up to be heard by the Court of Appeal, and I would find it hard to believe that counsel appearing in those cases will not seek to rely on this case. So I imagine it may only have a limited 'shelf-life' so to speak. Suffice to say it'll be interesting to see what approach and view the CA take, and also whether this decision itself gets appealed.

[MrShed]

To be honest, as I believe the ruling is absolutely correct and in keeping with the law as written, I cant personally see this being successfully appealed or superceded.

[wisden123]

It'll be interesting to see the CA's approach, I know it can often be rather interesting to see how a 'good' decision can suddenly be overturned.

 

It's a terrible indictment on the drafting of the legislation though that it has prompted this much confusion. But then modern drafting has been pretty abysmal all round (probably due to sheer pressure to draft so much stuff with the rate of legislating in recent years).

[MrShed]

It's a terrible indictment on the drafting of the legislation though that it has prompted this much confusion. But then modern drafting has been pretty abysmal all round (probably due to sheer pressure to draft so much stuff with the rate of legislating in recent years).

 

I think thats something we can all agree with!!

[MARTIN3030]

This needs to be stickied - contacting a mod. Of critical importance moving forward.

 

Yes agree Mr Shed.

Have stickied the judgement with a link to this thread.

Reason being that users can read it without it getting bogged down amid the discussion.

Feel free to repost it within this thread.

[MrShed]

Thats fine Martin - fully agree with that approach.

 

Thanks very much

[danielr]

Whilst I'm neither judge, nor solicitor, landlord nor letting agent, (just a humble tenant). I don't see this judgement as good at all.

 

I'll respond to some things in the post first, then get onto the judgement that was linked.

 

 

 

I would probably go further and say that the 3 x deposit fine is draconian in its entirety - seeing as how it sets a precedent in civil law for damages to be paid to the injured party, set out in statute, that is complete disproportionate to actual loss.

I completely agree, if I pay a deposit, reside in a house and return that house in the same condition, all I want is the deposit back, if the landlord objects I see that the dispute services can be used, or they could proceed straight to court without passing go. but honestly I just want and need my deposit money back.

I assume that the reason the penalty is so harsh is to do a more stick than carrot approach and actually persuade the bad landlords that they need to protect the deposits.

 

 

 

Parliament's intention (if you read Hansard) was to address the balance of power between tenants and rogue landlords.

which is good, and the deposit scheme does protect deposits well, if you have a dispute they can act as mediators, landlords can't just disappear, so the balance of power is equal.

 

 

I cannot say that I agree as you state that in the case of my friend that this was an example of the law meeting her requirements. This was in my view a classic and prime example of a landlord trying to extract their fingers from the legal till and avoid the harsh penalties for non-compliance.

 

Were this landlord to be allowed to avoid the 3x penalty by merely returning the deposit when caught out, as I said this would rob the act of all effect and make this particular legislation legally redundant.

I don't think that it robs the act at all. the fact that the tenant now has the deposit returned in full has had the effect to not just redress the balance of power away from the landlord to an equal level, but in fact to give the tenant possibly more power than the landlord. besides which, the tenant has their deposit returned in full, what's the problem?

 

 

 

There were three issues before the Court:

 

1. Could an agent be held liable for a failure to protect a deposit or was it entirely a matter for the landlord;

2. Was the requirement to register the deposit and give the required information within 14 days as required by section 213(6)(b) of the Act subject to the penalties set out in section 214; and

3. Is it an actual or implied initial requirement of the DPS scheme that the deposit be registered within 14 days of receipt.

 

 

references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies…

 

 

The Court noted that the Circuit Judge whose decision was being appealed had taken the view that to suggest that the 14 day requirement set out in s213(6)(b) did not attract the penalties set out is section 214 was to “drive a coach and horses” through the intent of the Act as it would permit a landlord to not protect a deposit until such time as they were challenged in Court. However, it also heard submission that this view was overly draconian as it penalised innocent error and that a failure to protect the deposit properly would always be penalised by section 215, which prevents the service of a section 21 notice while the deposit remains unprotected. Ultimately the latter position prevailed and the Court agreed that the Act itself does not impose a requirement that the deposit be protected within 14 days as long as it is protected prior to the matter coming before a Court.

 

Therefore as things currently stand agents are liable for a failure to register the deposit, late registration does not automatically attract the penalties set out in section 214, and the DPS scheme has no initial requirement that the deposit be registered with it within 14 days of being received.

as far as I know, agents just pass the deposit straight to the landlord, making agents liable for this is only going to ensure that agents are having to do more work, and will drive up the contract costs involved in renting a house.

 

the requirement to register in 14 days may be a bit tight, and for some times of year may be far too ambitious, (think Christmas/new years etc).

 

but the answer to this is to re-write the act to say the deposit must be registered within an appropriate amount of time, this would be say 1 month, even 2 months. 14 days is perhaps too ambitious.

 

if anything drives a coach and horses through the act it's this judges decision, the fact is that now a landlord needn't protect the deposit at all. at least not until the decision to return the deposit gets to the stage of going to court.

 

this judgement seems to now take the idea of redressing the balance of power thus.

 

landlords needn't protect the deposit and indeed can make deductions as and when they like.

 

the tenant (who is already out of pocket), now needs to take the landlord to court to discuss the issue (as all the protection and mediation services of the TDS have been denied.

 

upon receiving the court papers the landlord can now protect the deposit so that they don't get a penalty, but the person being protected now seems to be the landlord rather than the tenant.

 

 

 

thus the balance of power is squarely with the landlord, and it's up to the tenant, (who is already disadvantaged as they have lost their deposit, to then take the matter to court.

couple that with the recent news of court fees going up and it begins to feel like tenants are afforded no protection at all from rouge landlords.

 

all the tenant really wants, (and indeed all the tenant really needs or is entitled to) is their money back, less any deductions for damages or missed rent payments.

 

 

 

Seems this judgement is bad news for letting agents (who can now be held responsible for landlords not protecting the deposit). and bad new for tenants, who may have to fight even harder to get their deposits back, and who will end up paying higher agent fees.

 

the only people this judgement seems to have benefited at all is the bad landlords who shirk their responsibility to protect the deposits as required by law.

[danielr]

someone please correct me if I'm wrong...

 

 

 

 

...'cause I really hope I'm wrong.

[Steve__M]

danielr

 

if anything drives a coach and horses through the act it's this judges decision, the fact is that now a landlord needn't protect the deposit at all. at least not until the decision to return the deposit gets to the stage of going to court.

 

The courts reason for its decision on point 3 was that the 14 days was not part of the "initial requirements" of the particular scheme.

 

The law does not need to be rewritten. The schemes are responsible for deciding their own "initial requirements". If they all agree to set a deadline, then the landlord could not afford to miss it.

[atomicKitten]

Anyone got any ideas how this affects my case?

 

I rented a room recently but because I felt I had been misled about the accommodation (the Landlord was spending around 10 hours a day at the property) I got the Landlord to release me from the contract, which she agreed in writing.

 

After three months she still had not returned my deposit, I had agree she could keep my first months rent although I had only been resident for a week.

 

I proceeded with a class 8 claim and the Landlord did return my deposit after receiving my Summons.

 

Had a hearing and the Judge said she was going to deal with it as a part 7 because the matter was in dispute and gave the defendant 2 weeks to submit a defense.

 

Don't know if it's relevant but the Landlord did receive my deposit over 14 days before releasing me from the contract and at no point did she protect the deposit.

 

At the moment I would be glad to just get my court costs back £150

 

Anyone got any views?