Elizabeth Dwomoh reviews the legislation on tenancy deposit schemes and changes proposed by the Deregulation Bill
Deposit protection for tenants of an assured shorthold tenancy (AST) is enshrined in sections 212 to 215 of the Housing Act 2004 (the “2004 Act”), which came into force on 6 April 2007. Over the years, the Court of Appeal has continued to reach some surprising decisions, leading Parliament to amend the legislation. Proposed amendments are currently going through Parliament under section 30 of the Deregulation Bill.
All bark and no bite
At first, it appeared that the tenancy deposit scheme would fulfil its aim of protecting tenants from unscrupulous landlords who retained or made unlawful deductions from a tenant’s deposit.
Section 213 of the 2004 Act (as enacted), imposed certain obligations on landlords and their letting or management agents, when a tenancy deposit was received. These included:
- complying with the “initial requirements” of an authorised scheme on receipt of the deposit in order to protect the deposit;
- protecting the deposit within 14 days of receipt; and
- giving the tenant the prescribed information relating to the scheme within 14 days of receipt.
Sections 214 to 215 of the 2004 Act imposed sanctions for non-compliance with section 213. They included:
- permitting a tenant to bring a claim against their landlord;
- a landlord paying their tenant a fine of three times the value of the deposit; and
- preventing a landlord from serving a notice under section 21 of the Housing Act 1988 (section 21 notice) where he had not complied with section 213.
Following a cluster of decisions in the Court of Appeal, tenants were faced with a situation where the penal potency of section 214 was removed. The first of these was Vision Enterprises Ltd (t/a Universal Estates) v Tiensia; Honeysuckle Properties v Fletcher [2010] EWCA Civ 1224; [2010] 3 EGLR 53. This was a joint appeal where both landlords had failed to register the tenancy deposits or serve the prescribed information within 14 days of receipt. The landlords, however, complied by the date of the court hearing.
The court affirmed the dicta of Tugendhat J in Draycott v Hannells Lettings Ltd [2010] EWHC 217 (QB); [2010] PLSCS 46 that an order could not be made for three times the deposit under section 214 when the tenancy deposit had been registered before the tenant had issued their claim. The court further clarified that a landlord had a complete defence to a tenant’s claim if, by the date of the hearing, he had complied with his obligations under sections 213(3) and 213(6) of the 2004 Act.
Sedley LJ, commented in his dissenting judgment that the majority decision of the court rendered the scheme a “dead letter… as no tenant could ever be sensibly advised to sue”. In all likelihood, the best a tenant could hope to recover was their costs.
In Hashemi v Gladehurst Properties Ltd [2011] EWCA Civ 604; [2011] PLSCS 162 the landlord failed to protect the tenancy deposit at all. The tenant brought proceedings against the landlord at the end of his tenancy following deductions made by the landlord to his deposit. The Court of Appeal held that it had no discretion to make an order under section 214 once the tenancy had expired; when the relationship of landlord and tenant was over, a tenant’s ground for bringing a claim under section 214(1) was also extinguished.
Equilibrium restored?
On 6 April 2012, the amendments to the legislation made under section 184 of the Localism Act 2011 came into effect. The amendments included:
- extending the 14-day time limit to 30 days for compliance under sections 213(3) and (6);
- broadening the scope of section 214(1) to permit a tenant to bring a claim where the landlord failed to serve the prescribed information within 30 days of receiving the deposit;
- a fine under section 214(4), even in the event of late compliance with the requirements of sections 213(3) and (6);
- permitting a tenant to bring a claim against their landlord for a breach of section 213 after their tenancy expires;
- judicial discretion to award between one and three times the amount of the deposit;
- broadening the scope of section -215(1)(b) to prevent landlords serving section 21 notices where the deposit had not been registered within 30 days of receipt; and
- permitting a landlord to serve a section 21 notice when he returned the tenancy deposit to the tenant, or when the tenant’s section 214(1) claim had been determined by the court, withdrawn or settled by agreement between the parties.
These amendments were a coup for tenants; they restored the penal potency of section 214 by rectifying the effects of Vision Enterprises and Hashemi. Unfortunately, the equilibrium was not maintained for long.
Superstrike
Superstrike Ltd v Rodrigues [2013] EWCA Civ 669; [2013] 2 EGLR 91 dismissed the common belief that if a tenancy deposit was received before the deposit legislation came into force on 6 April 2007, it fell outside the ambit of the statutory scheme. The landlord served on the tenant a section 21 notice, seeking possession. The tenant resisted the claim, relying on section 215(1); namely, when the notice was served, his deposit was not protected. The tenant’s AST was granted before 6 April 2007. When the fixed term expired, a statutory periodic tenancy arose by operation of section 5 of the Housing Act 1988. The landlord continued to hold the deposit.
The Court of Appeal held that the section 21 notice was invalid. The periodic tenancy constituted a new tenancy and the landlord was therefore subject to the requirements of section 213 of the 2004 Act (as amended). The deposit provided at the start of the old tenancy was to be treated as security for the tenant’s performance of his new obligations under the periodic tenancy. In short, the tenant was deemed to have notionally paid the deposit to the landlord having waived his right to be credited with his original deposit held by the landlord.
The decision in Superstrike raises important questions for landlords and letting and management agents. For example, what was required in respect of a tenancy deposit received:
- pre-6 April 2007, but “notionally received” again when a tenant’s fixed-term AST became a statutory periodic tenancy before 6 April 2007?
- post-6 April 2007, but “notionally received” again when a tenant’s fixed-term AST became a statutory periodic tenancy?
- post-6 April 2007, but “notionally received” again when a tenant’s fixed-term AST was renewed?
Charalambous
Recently, the Court of Appeal has answered the first question in Charalambous v Ng [2014] EWCA Civ 1604; [2014] PLSCS 357. Here, the landlords had granted the tenants an AST in 2002, and the tenants paid a deposit. The fixed-term AST was renewed twice and became a periodic tenancy in 2005. In 2012, the landlord served a section 21 notice. The court deemed the notice invalid.
The landlords were not retrospectively subject to section 213 of the 2004 Act nor the financial penalty imposed under section 214. However, the prospective nature of section 215(1)(a) meant at the time the section 21 notice was served, the tenancy had to be registered. A landlord could circumvent this section by returning the deposit or registering the deposit late.
Redress for landlords?
The Bill aims to resolve the issues raised by Superstrike. Within 90 days of the Bill coming into force, any deposit received for an AST before 6 April 2007 must be registered and the prescribed information given to the tenant if the AST becomes a periodic tenancy.
Further, when the deposit received for an AST on or after 6 April 2007 was registered and the prescribed information given to the tenant, if the tenancy becomes a periodic tenancy and the deposit is still registered within a scheme, it is deemed registered and the prescribed information already served in respect of the periodic tenancy.
Lastly, when the deposit received for an AST on or after 6 April 2007 was registered and the prescribed information given to the tenant, if the tenancy is renewed or replaced and the deposit is still registered within a scheme, it is deemed registered and the prescribed information already served in respect of the renewal or replacement tenancy. This applies only if the parties to the tenancy agreement remain the same and the property let under the old and new tenancies are the same or substantially the same.
The amendments will only apply to affected ongoing claims that have not been determined at the time the Bill comes into force.
A gap remains in the Bill as it does not deal with the issue highlighted in Charalambous. Parliament can rectify the situation by inserting “before” at the start of section 215A(1)(b) so that it applies to statutory periodic tenancies created “before and after” 6 April 2007.
Compliance checklist (correct up to the coming into force of the Deregulation Bill)
Within 30 days of receipt of a new AST deposit:
- Register the deposit and provide the tenant with a copy of the prescribed information.
- Provide the new tenant with a copy of the tenancy deposit protection certificate.
Within 30 days of the start of a statutory periodic tenancy, a renewal or a replacement AST:
- Confirm the deposit is still registered and re-issue the tenant with a copy of the prescribed information.
- If possible, get tenants to confirm receipt of the prescribed information.
If you received a pre-April 2007 tenancy deposit, and the tenancy has become a periodic tenancy post-April 2007:
- Only serve a section 21 notice once the deposit is registered and the prescribed information is given to the tenant. Alternatively, repay the deposit.
If you received a pre-April 2007 tenancy deposit, and the tenancy became a statutory periodic tenancy pre-April 2007:
- Only serve a section 21 notice once the deposit is registered and the prescribed information is given to the tenant. Alternatively, repay the deposit.
Elizabeth Dwomoh is a barrister at Lamb Chambers
