Tenancy Deposit Schemes – Good News For Landlords?
Most Landlords are aware that any deposits taken in connection with assured shorthold tenancies must be paid into one of the three Tenancy Deposit schemes with the prescribed information supplied to the Tenant. This legislation was introduced by the Housing Act 2004 and affects all assured shorthold tenancies commenced on or after 6 April 2007. Failure to do so has the following consequences as set out in the Act:
- Landlords are unable to use the Section 21 procedure (service of two months notice and the use of the accelerated possession procedure);
- Tenants can ask the Court to order the Landlord either to repay the deposit or to pay it into one of the schemes; and
- The Tenant can also ask the Court for an Order that the Landlord pay a “fine” equivalent to three times the amount of the deposit.
This year, we have had two Court of Appeal decisions which dramatically affect the penalty provisions referred to in Paragraphs 2 and 3 above. Like London buses, we haven’t had a decision on Tenancy Deposit schemes for a while, but then two come along at once!
In the Court of Appeal decision of Gladehurst Properties v. Hashemi, the Court has stated that once the Tenancy has ended, the Tenant no longer has the necessary status to bring a claim for penalties under the Act.
In the second case of Vision Enterprises v. Tiensia, the Court held that a Landlord can successfully defend any claim for a deposit penalty if he simply pays the deposit into one of the schemes at any time before the date of the hearing itself.
The effect of these decisions severely restricts the Tenant’s ability to successfully claim against Landlords under this legislation, both in relation to the return of the deposit and the claim for three times the amount of the deposit. Once the Tenancy has ended, the Tenant cannot make the claim in any event and even during the subsistence of the Tenancy, Landlords can defend the claim if they simply pay the deposit into one of the schemes before the case is heard. The difficulty for tenants of course is that they often don’t realise that the deposit has not been protected until the Tenancy is coming to an end and by the time they get round to making a claim the Tenancy may well have ended and by then it is too late.
These decisions have been criticised therefore because it reduces the Landlords’ incentive to protect deposits. Most Landlords will, of course, protect deposits as a matter of course but for those that forget or deliberately chose not do so, the penalties have been reduced. We may find that as a result Tenants will go back to claiming deposits that have not been protected or returned after the determination of their Tenancies in the small claims Court.
This sounds like good news for Landlords, but is it? The intention of Parliament, when the legislation was passed, was surely to provide a penalty for Landlords if they failed to comply with the rules. The Courts, however, have interpreted these rules in a different way by concluding that the purpose was in fact simply to protect deposits paid by Tenants ideally within 14 days of the payment but if not, then later. As a result the sting has effectively been taken out of the penalty provisions, making it virtually impossible for Tenants to make successful claims under this legislation. However, the present Government may take the view that this effectively defeats its object and they may well decide to bring in amendments (possibly in the Localism Bill currently going through Parliament) that may make the position worse. We will have to wait and see what this coalition Government decides to do.
In the meantime, Landlords are well advised to continue to ensure that deposits are protected and information supplied. These cases do not affect the remaining penalty that Landlords cannot serve a Section 21 Notice whilst the deposit remains unprotected, and this continues to be a very real incentive to do so.
George Palmer
Dunn and Baker Solicitors 21 Southernhay East Exeter (01392 285000)