For several years after the introduction in April 2007, the requirement for landlords of residential properties to protect the deposit paid to them by their tenants in one of three authorised schemes.
The way in which the courts should interpret the legislation, especially in relation to the sanctions applied in the event of landlord default, was uncertain. County Courts asked by tenants to apply the sanctions set out in the 2004 Housing Act, by ordering the defaulting landlord to pay three times the deposit as compensation obtained, differing results depending upon the circumstances of the case and the mood of the district judge.
Following a number of Court decisions, including two Court of Appeal decisions, the sanctions set out in the Housing Act 2004, to be applied where the landlord had failed to protect the deposit or provide the tenant with the requisite information, were effectively erased. The tenant could not succeed in seeking compensation from the landlord, provided that the landlord protected the deposit and served the requisite statutory information on the tenant prior to the court hearing. The requirement that the landlord should protect the deposit and serve the information within 14 days of receiving the deposit money was effectively erased. Neither could the tenant seek compensation for a failure to protect the deposit after the tenancy had been brought to an end. The only remnant of the sanctions set out in the 2004 Housing Act was that the landlord could not serve a valid Section 21 Notice, or seek possession based on that notice through the courts unless and until the deposit was protected.
The new Localism Act, which received Royal Assent on 15 November, will, upon the commencement of the relevant parts of the Act, make the recent decisions of the Court of the Appeal obsolete and result in a new tenancy deposit landscape, amending the original legislation contained in the Housing Act 2004. The amendments made by the Localism Act are as follows:
- 1. That the time for the landlord to protect the deposit and to provide the requisite information, is extended from 14 to 30 days.
- 2. That the tenant has the right to pursue a claim even where the tenancy has ended.
- 3. That if a landlord fails to protect the deposit, or to send the statutory information relating to its’ protection within the 30 day period, then the Court must award compensation. Compensation will now be a figure between the one and three times the value of the deposit. The amount to be awarded is at the discretion of the judge. No guidance is given in relation to the amount that should be awarded by the court, but it is anticipated, that only in the most serious cases, will the three times value be awarded. In other words, the court will look at the conduct of the landlord or agent in making its’ decision.
- 4. That while the landlord is in default it is not possible to serve a valid Section 21 Notice. However, a valid notice can be served if the deposit has been returned to the tenant, with or without deductions, as long as any deductions have been agreed with the tenant, any dispute over deductions has been determined by the court, or any claim that is brought by the tenant is withdrawn or settled.
The changes therefore reinstate the penalty provisions and make it clear that the Tenant can still sue, even if the Tenancy has ended.
Our advice to landlords and agents is to ensure that once a deposit is paid, it is protected and the requisite information given within 30 days. If it is not, then the landlord will be in some difficulty in defending any proceedings brought in relation to their default by the tenant.
If the landlord is in default, as the penalty provision covers a period of one to three times the value of the deposit. We would recommend that the landlord either returns the deposit without a deduction to the tenant or protects it immediately and serves the requisite information. This approach should limit the value of any claim brought by the tenant because at least the landlord can advise the court that the deposit is now protected and argue that the default was rectified at an early stage. Protection of the deposit being was the intention of the legislation.
Estate Agents Commissions Arising Out of Sale
Foxtons entered into an agreement with a Mr and Mrs O’Reirdon to sell their property on a sole agency basis. The property was valued around £3,500,000 and Foxton’s commission, should they find a buyer, was 2.5% of the price plus VAT. In July 2007 Foxtons introduced a purchaser who agreed to pay the £3,500,000 requested. Contracts were exchanged and as a result, Foxtons sent to the O’Reirdon’s solicitors, an invoice seeking to recover their commission, namely £82,500 plus VAT. The sale fell though. The invoice remained unpaid.
Foxtons issued proceedings and the O’Reirdon’s defence was that there was an implied term in the contract that any purchaser introduced by Foxtons had to be a cash buyer. Foxtons denied this. The Judge found that he preferred the evidence of Foxtons of that of the O’Reirdons, no doubt based on the fact that there was no evidence of this agreement in that it was not reflected in the signed documentation or in any documentation generated thereafter. The Court’s position was that, if there was going to be a deviation from a written contract then there must be very good evidence to show it. None existed in this case.
