RIP Penalty Provisions for Failing to Protect Tenant’s Deposit
One of the significant changes introduced under the Housing Act 2004 was the requirement for Landlords, from 6 April 2007, to join a Tenants Deposit Scheme. They were required under the Act to protect the Tenant’s deposit and failure to do so could lead to them being fined three times the value of the deposit, payable to the Tenant.
This requirement led to a substantial number of Court cases, mainly dealt with at County Court level. A variety of decisions were made and in some cases the penalty was enforced, in others not. Those cases were referred up the Court system by way of appeal, and as a result it now appears that the Tenants ability to recover any penalty, where the Landlord defaults, has now been removed.
The first case which questioned a Tenant’s right to claim compensation was that of Universal Estates v Tiensia, which was heard by the Court of Appeal on 11 November 2010. A deposit of £2,400 had been paid but was not protected. Following the Tenant falling into rent arrears a Section 8 Notice was served by the Landlord. The Tenant defended the proceedings claiming that the deposit hadn’t been protected. Prior to the original hearing the Landlord registered the deposit and provided confirmation of the same to the Tenant. At the original hearing before the District Judge he found the Landlord had not complied with the time limit that was strictly set out in the Act, nor as set out in the relevant Tenancy Deposit Scheme and while the Landlord had subsequently complied, it was too late and he was ordered to pay three times the value of the deposit to the Tenant.
That decision was appealed by the Landlord to the Circuit Judge who overturned the original decision on the basis that the sanctions set out in the Act did not apply. The Landlord had complied with the requirements of the scheme and provided the required information, confirming that the deposit had been protected, to the Tenant prior to the date of the hearing of the Tenant’s claim.
The Tenant appealed that decision to the Court of Appeal. The Court, by majority verdict, affirmed the Circuit Judge’s decision and dismissed the Appeal. The Court of Appeal said:
- That no scheme can impose an initial requirement that the deposit must be protected within 14 days
- Provided the Landlord protects the deposit and provides the prescribed information by the time of the hearing (namely the trial), then a Tenant’s claim will fail
That decision has been followed this year by a further Court of Appeal decision in the case of Gladehurst Properties Ltd v Hashemi.
Mr Hashemi was a tenant along with Mr Johnson. The deposit was never protected. At the end of the Tenancy the deposit, less deduction, was returned to the Tenants. Mr Hashemi brought proceedings seeking to recover the balance due in respect of the deposit and a three times penalty on the basis that the same had not been protected by the Landlord. The obvious difference between this case and the previous case is that the Tenancy had ended and the deposit had been returned. The Court looked at the sections of the Housing Act which introduced not only the requirement for a deposit to be protected, within one of the authorised schemes, but also the penalty provision, namely that in default the Landlord would be ordered to pay three times the deposit and would be ordered by the Court either to return the deposit to the Tenant or in the alternative pay it in to an authorised scheme.
The Court noted that the deposit had already been returned and therefore the requirement to return it or pay it into a scheme would not be appropriate. Furthermore, the penalty clause again would not be appropriate on the basis that the deposit had already been returned and could not now be protected. Therefore they took a common sense approach that in the circumstances, because the deposit had been returned (ensuring that the Tenant didn’t lose out) the Tenancy had ended, then the monetary penalties would not apply.
In the circumstances it is now difficult to see on what basis a Tenant can successfully pursue a claim under the penalty provisions. As soon as a Landlord becomes aware of a potential claim, if the Tenancy is still continuing, then they will protect the same or if the Tenancy is ended, then the penalty will not apply in any event.
