Provisions aimed at safeguarding residential tenants’ deposits came into force on 6 April 2007. As a result, landlords that take a deposit in respect of an assured shorthold tenancy (for rent up to £25,000 pa) must protect it through an approved deposit protection scheme. Non-compliance cal lead to sanctions.
The press notice accompanying the legislation stated that: “Tenants will be able to check to see whether their landlord has protected their deposit in one of the schemes. If they haven’t done so within 14 days, the tenant can apply to the courts, who can direct the landlord/agent to pay three times the deposit back to the tenant.” Unfortunately, however, the statutory provisions are not as clear as the government would like to believe. Consequently, county court judges have reached conflicting decisions on the effect of the legislation.
Draycott v Hannells Lettings Ltd [2010] EWHC 217 (QB); [2010] PLSCS 46 is the first High Court decision on the requirements in the Housing Act 2004. Two points were disputed before the judge. The letting agents argued that: (i) claims for non-compliance with the legislation lie against landlords and not their agents; and (ii) liability to pay tenants an amount equal to three times the deposit is negated where a deposit is protected outside the 14-day period but before the tenant issues a claim.
The judge had no difficulty with the first point. He ruled that the legislation was unambiguous, and that the penalty should be imposed on the party responsible for non-compliance with the legislation. In this case, the letting agent was responsible, not the landlord.
The second point turned on the meaning of section 213(3). This provides that “where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 14 days beginning with the date on which it is received”.
The tenant argued that the legislation was enacted to protect tenants and to punish non-compliance. If late compliance would suffice to defeat claims by tenants, unscrupulous landlords or letting agents would be able to hold on to deposits without sanction, so long as a tenant’s deposit was protected if proceedings were threatened.
None the less, the judge found in favour of the letting agent. He dismissed the tenant’s argument that this would deprive the Act of teeth on the ground that landlords are unable to recover possession from tenants whose deposits are unprotected. He ruled that the 14-day requirement was not part of the initial requirements of the deposit protection scheme used by the landlord.
The judge’s somewhat strained interpretation of the legislation rescues landlords from harsh penalties for what may be brief and insignificant failures to comply with the legislation, but it is at odds with the government’s view. Watch this space for further developments following the Court of Appeal’s decision in Universal Estates v Tiensia, which is listed for hearing before Easter.
Allyson Colby is a property law consultant
