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New Case Law for Tenancy Deposits

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The Court of Appeal has now clarified the date by which a landlord has to protect a tenant’s deposit in order to avoid a penalty.

Under a shorthold tenancy the deposit has be protected by lodging it with one of three tenancy deposit schemes. The landlord then has to notify the tenant of what has been done and provide other key information.

And, if this isn’t done, landlords face a penalty of three times the amount of the deposit.

“Up to now there has been a great deal of uncertainty over the date after which a tenant can claim this penalty if the landlord defaults,” says Richard Jones, the Policy Director of the Residential Landlords Association.

“Judges have been divided on this question and different courts have arrived at different conclusions. This has led to so much uncertainty that the Residential Landlords Association decided to back one of its members in a test case.”

“The appeal court has now ruled that so long as a landlord has protected the deposit with one of the schemes, and given the required information to the tenant, before a court hears the claim, then the tenant is not entitled to the penalty payment.”

“The Court of Appeal’s decision is in line with the government’s original intention when the legislation was introduced.”

“The penalty provision was always intended to ensure that the deposit is properly protected and to give the tenant a way of compelling his landlord to comply – not to punish the landlord.”

“We took this case, on behalf of our member, to resolve all the previous uncertainty because it was becoming a lawyer’s paradise. The appeal court judges said that the legislation was not well drafted. It was introduced in a hurry without proper debate. As a result, landlords who made honest mistakes were being penalised in the same way as those who deliberately ignored their responsibilities.”

“In this particular case our member thought that she had protected the deposit but, due to a mistake in the payment system, her fee was not collected. She only realised this when she received the claim from her tenants and immediately took steps to put this right.”

“The judges’ decision has recognised that, because courts had no discretion to waive or reduce the penalty, landlords could be unfairly penalised – as happened in this case. The landlord had obtained judgment against the tenant for rent arrears but these were wiped out by the amount of the claim.”

“Another problem is that landlords who had got their paperwork wrong were being penalised even though they had properly registered the deposit with one of the schemes.”

“Concerns were raised by the judges that landlords may now be less willing to protect their deposits. However, landlords should always protect their deposits within 14 days of receiving them and give the required notification to their tenants. If they fail to do so, and the tenant brings a court claim, the landlord could face a bill for costs even though the deposit is protected.”

“What we have achieved, by backing this test case appeal, is to make sure that the intention of the legislation is carried out. The landlord now has a chance to put things right.”

“According to the government it was always meant to be a way of making sure that tenants had a means of getting landlords to comply. In reality, though, it was giving tenants a way of collecting an unjustified windfall.”

And, added Richard Jones: “Landlords who have already paid the penalty may wish to take legal advice about claiming it back.”

1. The decision in question is Christelle Tiensia v Vision Enterprises (t/a Universal Estates) and Honeysuckle Properties v Fletcher & Ors. Judgment was handed down by the Court on 11th November 2010. Lord Justice Sedley dissented from the decision.

2. The Court was faced with three possible dates after which the penalty became possible. These were 14 days from receipt of the deposit; before the tenant had issued a claim to the Court for the penalty or (as the Court decided) the date of the Court hearing.

3. A landlord against whom a penalty claim is made will still face having to pay the Court fee and/or legal costs even if he/she then goes ahead and protects the deposit prior to the Court hearing.

4. The relevant legislation is contained in Section 213 and 214 of the Housing Act 2004.

The Residential Landlords Association is the leading national organisation whose members own over 100,000 properties in the UK’s private rented sector.

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