Tenancy Deposit Protection - First High Court Decision

[GuidoT]

Guidance is well overdue, let us see if this case when judgement is finally handed down helps to clear up the current confusion.

 

'Tomorrow (Monday 25 January 2010) PainSmith has a case appearing in the High Court which should provide the first binding decision on Tenancy Deposit Protection under the Housing Act 2004.

 

 

In Draycott v Hannells Lettings Ltd there are two issues for the Court to consider.

1. Whether an agent can be pursued for the usual penalties under s214 due to the deposit being unregistered; and
   
2. Whether the penalties under s214 bite merely on late registration or only if the deposit is unregistered when the Court comes to consider the matter at hand.
   

PainSmith is acting for the Defendant lettings agent in this case which is expected to have far-reaching effects across the industry. There is unlikely to be a final decision tomorrow but it should follow relatively shortly and will, no doubt, be reported here when it does.'

 

 

Thanks to lawdoctor for leading me to it.

[lawdoctor]

My pleasure GuidoT

 

Up date the decision has been reserved---should be with us soon.

 

I for one cant wait!!!

[GuidoT]

'UPDATE: Mr Justice Tugendhat has reserved his decision. At this stage we do not know when a final decision will be rendered. We will post more information here as it becomes available.'

[lawdoctor]

Anyone care to forward a view as to what would be the case if a landlord gave you back your deposit into your account in cash when you caught them out for not registering the deposit? just chewing the fat as it were!!!

[empirix]

How do you think this ruling should go ?

 

Surely the deposit wasn't lodged and tenant wasn't informed within 14 days ... end of story ?

 

What is the point in it only biting if the deposit isn't lodged by the time it goes to court ? ... Landlords and agents would just sit on it until they get issued proceedings.

[Steve__M]

As a landlord who has always followed the 14-day rule and never kept a penny of any deposit I've received, I see the following issues:

 

1. The law is an ass:

 

The legislation does not say that failure to meet the 14-day rule will lead to the penalty. It refers to failure to meet the "initial conditions" of the deposit protection scheme.

 

When debating the legislation in parliament, there was no indication that failure to meet a 14-day deadline would result in the 3x penalty. It was stated that the penalty would be applied if the landlord continued to refuse to protect the deposit.

 

There are virtually no areas of civil law where such a large penalty for a potentially small breach is mandatory.

 

2. The 14-day limit is very short and can be impractical:

 

Disorganised agents can make mistakes that put the landlord at risk.

 

It's quite possible that deposits are paid when the LL is on holiday, in hospital, working so hard he hasn't checked his bank account for 2 weeks.

 

It's often the case that each of the joint tenants pay at different times, but it's not easy to protect half a deposit while waiting for the other half.

 

If only some of your joint tenants move out you have to deprotect and then reprotect the deposit for the remaining tenants. I had £750 locked into the DPS for 2 months because the remaining tenants were a bit slow in agreeing the deprotecting part, but I had already reprotected £1500 to meet the 14-day deadline for the 2 new tenants.

[empirix]

agree it is an ass.

 

But it's there to stop unscrupulous agents using the deposits as down payment on their Aston Martins.

 

Surely the law is the law, and the fact that one of the "initial conditions" is to notify the tenant where and how the deposit is lodged (within 14 days) ... means the the 3x penalty should kick in.

[Steve__M]

agree it is an ass.

 

But it's there to stop unscrupulous agents using the deposits as down payment on their Aston Martins.

 

Surely the law is the law, and the fact that one of the "initial conditions" is to notify the tenant where and how the deposit is lodged (within 14 days) ... means the the 3x penalty should kick in.

 

When I looked, TDS had lots of "initial conditions". DPS had none that I could find. The law does not say the 14-day limit is part of the initial conditions. Could be different now. Again, because the law is an ass, despite the fact that all three schemes are sanctioned, they've not come to an agreement together to work out consistent "initial conditions".

 

(It might sound like I'm arguing against this law, but I think it should be stronger but clearer. I would get rid of the insurance-backed schemes as they seem to be chocolate teapots particularly when the landlord is off-shore, and I would allow the tenant and landlord to agree that the tenant pays the money directly into the scheme.)

[lawdoctor]

Morning empirix,thanks for joining debate!

 

I agree fully, if a watch dog can't bite you need a new "dog"

 

Although it is likely there will argument about what would be the case if the agent was acting on a find tenant "only contract" and he hands over the deposit to the landlord or registers the deposit and gives the deposit to the landlord.

 

My view is the agent is stakeholder for the parties and as such, should retain the deposit as such,after all untill there is a proven claim the deposit belongs to the tenant.Futher it is not the landlords to play around with in the hope that one day it will be his-----this is the type of mischief the act was designed to prevent.

 

The Housing Act 2004 provides that the landlord and agent are for the purpose of the act one and the same.

 

I am handling a claim for a friend who when she sort comfirmation that the deposit was protected,some 9 months into a one year let the landlord on his solicitor's advice retuned the deposit without request to my freinds account.

 

I am firmally of the view that were this to be tolerated it would it render the act "toothless" and rob it of all legal purpose !!!!

 

My firm view is that as badly as this act is drafted when all of the legal dust settle's it will mean what it was legally intended to mean.

 

ie,If you take a deposit in relation to a shorthold tenancy you must register it within fourteen day and provide the stautory paper work or risk the 3xdeposit mandatory penalty.

 

The time for twisting and turning to try and defeat parliament's intention is coming to an end

 

LD

[Steve__M]

I am handling a claim for a friend who when she sort comfirmation that the deposit was protected,some 9 months into a one year let the landlord on his solicitor's advice retuned the deposit without request to my freinds account.

 

I would say that is an example of the law meeting the requirements of your friend - namely, to keep the landlord from having a hold over the tenant after the tenant has moved out.

 

Another good thing for long-term tenants is that the tenant can ignore any Section 21 request to terminate the tenancy as long as the deposit remains unprotected, which is a strong incentive to landlords and agents to protect deposits.

 

Parliament's intention (if you read Hansard) was to address the balance of power between tenants and rogue landlords.

[lawdoctor]

Hi steve m

 

I did read Hansard,originally seven days was mooted as the suggested period for compliance with the provisions of the then pending tenancy deposit legislation. After debate to accommodate matters such as bank holidays, weekends and the like it was finally agreed that 14 days would allow reasonable time for compliance. This concession was agreed upon if you read Hansard after debate and discussion centered around the strict liability mandatory terms contained in the legislation.

 

I cannot say that I agree as you state that in the case of my friend that this was an example of the law meeting her requirements. This was in my view a classic and prime example of a landlord trying to extract their fingers from the legal till and avoid the harsh penalties for non-compliance.

 

Were this landlord to be allowed to avoid the 3x penalty by merely returning the deposit when caught out, as I said this would rob the act of all effect and make this particular legislation legally redundant.

 

With regard to the other sanction that you mention i.e. the prohibition on serving a lawful section 21 notice, in the case of my friend her landlord has served a section 21 notice and my belief is that the notice is ineffective as a result of having failed to register her deposit an error which her landlord can now not remedy (having returned the deposit). My friend is and has been always up to date with her rent so a section 8 notice seeking possession is not an option!!

 

What an expensive little pickle this silly law-breaking professional landlord (he has at least 10 properties) finds himself in.......would you not agree?

[bedlington83]

my belief is that the notice is ineffective as a result of having failed to register her deposit an error which her landlord can now not remedy (having returned the deposit).

It's an interesting argument. I'd be interested to know what the judge thinks of it should your friend object to the section 21

[lawdoctor]

Hi Bedlington83,

 

Yes, I believe it is a very interesting legal argument that goes further than the mere face value legal debate as to whether the section 21 notice is valid in law given the breach of the provisions contained in the tenancy deposit legislation.

 

The tenancy agreement (contract) provided that a deposit must be paid in relation to the tenancy. This therefore became a core term of the tenancy agreement and by returning the deposit without request the landlord is, in my humble view, indisputably in breach of contract.

 

This breach of contract, which was not agreed to by the tenant, was clearly to afford the landlord a hopeful loophole from the mandatory penalty for non-compliance.

 

I for one find it difficult to imagine that a court would afford a remedy to a double law and contract breaker in the circumstances we discuss. The doctrine of offending public policy springs to mind.

 

If of course as I suggest a landlord would not be afforded a civil remedy in the circumstances we discuss i.e you cannot just return the deposit to avoid the mandatory penalties, then why should any other such legal loophole be available to a landlord such as registering the deposit late, not providing the prescribed information in the prescribed format or a form substantially to the same effect within 14 days be allowed either - this is why parliament legislated that this is a strict liability mandatory law that is not subject to set-off or counterclaim.

 

Do you see where I am going? When the legal arguments and dust has settled the act will mean what parliament meant it to mean, in my humble view of course!!

[Steve__M]

It's an interesting argument. I'd be interested to know what the judge thinks of it should your friend object to the section 21

 

This particular Gordian knot could be cut if the judge decides that once the tenancy deposit is repaid, the tenancy deposit no longer exists. If the deposit no longer exists, the legislation does not apply.

 

But I am not a judge

[bedlington83]

That's where my thoughts are Steve, but then I'm neither a judge nor a solicitor and am almost certainly applying far too much common sense.

 

Lawdoctor - how do you counter if the landlord or his representative argues as Steve suggests at the hearing? Is the answer in the phrase strict liability mandatory law I wonder (I have no idea what it means)

[lawdoctor]

Steve M

 

Your argument, if it is that, just appears to reaffirm the point I have been playfully trying to expand on i.e can an agent/landlord develop means by which to defeat the clear intention of parliament? I suggest with some force that the answer to that question is simply and plainly NO!!

 

With regard to the section 21 notice, it is right that a court of law would be required to attempt to undo the legal tangle to which the landlord in this case unwittingly but nontheless with malice of purpose finds himself in. As you are no doubt aware county court decisions are not binding even to the decision maker. So in the event that my friends matter is listed, as is likely, before a district judge the option to appeal to a circuit judge of the county court exists to the losing party.

 

As I said before this landlord has embroiled himself in a proper legal pickle of his own making which if not decided in the favour of my friend is likely to be very protracted and extremely costly (the case as been allocated to the multi-track).

 

Staying with the issue of costs, even in the unlikely event the landlord was able to pursuade the court of final judgement that it was fair, just and equitable for him to attempt to pervert the intention of parliament it would still be unlikely in my somewhat experienced view that he would be able to satisfy the court of any entitlement to costs. I personally as a pragmatic person if I were him would attempt to settle the matter now, to that end an offer to which you will understand I cannot refer to is on the table as we speak.

 

Will we settle? I think perhaps we might wait at least until the outcome of the high court (sitting in Manchester) case in which Painsmith solicitors act for the letting agent defendant.

[Kentish Lass]

Anyone care to forward a view as to what would be the case if a landlord gave you back your deposit into your account in cash when you caught them out for not registering the deposit? just chewing the fat as it were!!!

 

It depends on how the particular judge sees it! Since the deposit has in fact been returned, the judge may consider that he/she is not able to order "that the deposit be returned AND a penalty of 3 x deposit". This of course makes a mockery of this badly drafted legislation since it means any landlord can retain the deposit in his own account and only return it when threatened with being sued. Fortunately, some judges do try to follow the intention of the law rather than just the letter!

[empirix]

The reason for my interest in this ...

 

I was a tenant who got booted out of the property because the landlord wanted to move back in. It all get very nasty ...

 

After investigation it turned out the deposit hadn't been protected so I approached the agent. Turns out he wasn't aware that he needed to protect deposits ! bear in mind this is a very well known local agent with 8 offices.

 

Naturally, he didn't fancy the prospect of every one of his tenants claiming so he paid up 3x + the deposit

 

Happy days ...

[lawdoctor]

Hi Kentish Lass

 

Firstly let me congratulate you on your excellent contribution to this forum, I have found your advice and reasoning to be balanced and in the round, along with your legal input, full of common sense.

 

Back to the matter in hand, of course you are quite right and I along with many observers consider this particular piece of legislation horrendously badly drafted.

 

In the pending high court decision it is not known as to how far, if at all, Mr Justice Tugendhat will step outside his remit with regard to the appeal that was before him, so it may be the case that there will still be unanswered questions after the decision in the instant case.

 

As for your view that the court, in the case of my friend, may not be able to arrive at the point where they can order the 3x penalty you are of course right. However given there has been much ink spilt - albeit only to date - with regard to previous county court decisions, I have added another alternative claim namely a claim for damages to be assessed by the court for Breach of Statutory Duty.

 

As you will be aware this is a 'stand alone' tort and I am hopeful that it will lend an alternative to the court deciding the issue to avoid the annoying features of this badly drafted piece of legislation, of course we shall just have to wait and see how this legally novel approach is received by the court on the day!

 

Naturally I am aware that generally speaking a claim should be forwarded on its most relevant head of claim. Also I am aware that when bringing a claim in the tort of Breach of Statutory Duty the claimant must satisfy the court that the breach of duty was one which parliament intended that they should be compensated for in civil law.

 

Historically judges in the round have been opposed to mandatory penalties as it fetters their discretion and does not provide them the opportunity to deal with the case before them on its own facts or merits or for that matter lack of merit. I would hope that my novel (perhaps unique?) approach to the case of which I speak will provide some latitude to the court which it might not otherwise have - one way or the other!

[Steve__M]

Steve M

 

Your argument, if it is that, just appears to reaffirm the point I have been playfully trying to expand on i.e can an agent/landlord develop means by which to defeat the clear intention of parliament? I suggest with some force that the answer to that question is simply and plainly NO!!

 

The clear intention of parliament was to deal with the, by their estimate, the 20% of "bad" landlords who unjustifiably held on to deposits as if it was their right. The sanctions are a means to an end. Penalties in civil law are almost anathema.

 

I think my "argument" is rather good. I can give you other even more odd conclusions that judges have come up with to resolve unfair or unreasonable scenarios.

 

Where the law is apparently ambiguous, I believe the judges can consider the "public policy" aspects in determining which way to go with it.

 

As I said before this landlord has embroiled himself in a proper legal pickle of his own making which if not decided in the favour of my friend is likely to be very protracted and extremely costly (the case as been allocated to the multi-track).

 

Is your friend very rich then?

[lawdoctor]

Way to go Steve M, good old fashioned legal debate the kind of stuff our legal system was and is built on.

 

Steve if I might say that were you to take off your agents hat for a while perhaps you might have a broader less blinkered arena from which to harness your thoughts. That being said it hurts not to be the corner man for your fighter as it were.

 

You say the intention of parliament was to deal with the 20% or so landlords/agents who unjustly (a polite term for steal) 'hold on to tenants deposits', I submit for your consideration that 20% of such landlords/agents perhaps account for some 60-80% of control of the private residential letting stock. It is perhaps for this reason that parliament decided to, by way of mandatory reform, impose the new legislation with all of its penalties on 100% of the potential offenders good and bad - of course the good had little to fear!

 

As you will no doubt be aware the letting agency industry is very largely unregulated and the non-mandatory bodies that allege to offer some control and regulation on this industry are themselves self-appointed businesses in their own right over which the legislator has little influence or control. I feel sure that this reality was at the forefront of parliaments mind when it decided to make the legislation we discuss 'strict' and 'mandatory'.

 

You say the law as in the matter we discuss is ambiguous, I submit that there is little if anything ambiguous about a strict mandatory provision contained in the statute. Were the legislators and the draughtsmen intending for certain circumstances to be excluded they would have specifically spelt out any exclusions from the mandatory bill before it reached the statute books.

 

By way of example, the Cancellation of Contracts made in a Consumers Home or Place of Work etc Regulations 2008 SI 1816 is a mandatory regulation of which it is a criminal offence not to comply and the penalties are punitive in nature. Nonetheless schedule 3 to this regulation provides statutory exclusions which are outside the regulations scope and as such are made lawfully accepted.

 

It was the very same government that introduced the above law and presumably the governments same draughtsmen who drafted the legislation of which we debate.

 

The point I'm trying to make is that in my view had the government wanted to allow all and sundry to be able to drive a coach and horses through the legislation they at least perhaps would have been mindful not to make it mandatory.

 

I am afraid that the industry and landlords small and large are just going to have to accept that the good old days of riding roughshod over the private tenant are dead and gone - just as the days of hiding your business dealings from HM Customs & Excise were extinguished to a large extent upon the passing of the tenancy deposit legislation!

 

I am reasonably informed that HM Customs and the Treasury had the tax avoidance issues fully to the forefront of their mind when this legislation and its bolt on extras soon to be introduced was being given legal birth.

 

Finally, my friend as you ask is not by any measure or scale rich but then she is not the one who is paying in excess of £200 PH + vat for the privilge of finding out that of which she already has (on a pro bono basis) senior counsels opinion.

 

I truly hope you do not in any way feel offended in the way in which I present my argument as that is not my intention, I am merely trying to open and widen the debate so that we can all hopefully try to think outside the box.

[vidavooz]

Anyone have any idea when there might be an outcome in High Court? I had a l/l whom did not protect my deposit until he received court papers - some 3 my months after receiving deposit. Went to court end of last year when I was still living at property - judge adjorned it, said could not give penalty as l/l had now protected deposit.

 

I have now moved out - left place in excellent order - had no deposit retrned as l/l said needed extensive renovation ( i have photos/video/witnesses to prove otherwise) - back in court at end of Feb. This l/l well known for retaining deposit unfairly - if only I knew that before moving in. Hope outcome of high court before we go back to court.

[Steve__M]

Way to go Steve M, good old fashioned legal debate the kind of stuff our legal system was and is built on.

 

Steve if I might say that were you to take off your agents hat for a while perhaps you might have a broader less blinkered arena from which to harness your thoughts. That being said it hurts not to be the corner man for your fighter as it were.

 

I'm not an agent. I'm a small-time private landlord, as well as being an ex-tenant of many years' renting who has a good memory of (some) bad landlords and agents.

 

You say the intention of parliament was to deal with the 20% or so landlords/agents who unjustly (a polite term for steal) 'hold on to tenants deposits', I submit for your consideration that 20% of such landlords/agents perhaps account for some 60-80% of control of the private residential letting stock.

 

No. I stated wrongly. It is 20% of tenants who felt their deposits had been wrongly retained. From Hansard: "However, government statistics have shown that, in a significant minority of cases of around 20 per cent, tenants who had a tenancy ending in the previous three years felt that their landlord had unreasonably retained all or part of their deposit. Unfortunately, there are some landlords who make it a practice of always withholding their tenants' deposits."

 

You say the law as in the matter we discuss is ambiguous, I submit that there is little if anything ambiguous about a strict mandatory provision contained in the statute. Were the legislators and the draughtsmen intending for certain circumstances to be excluded they would have specifically spelt out any exclusions from the mandatory bill before it reached the statute books.

 

I can throw the same claim back at you. The law is a mess. That's why they've ended up having to have this test case, and why most of us who've been around here a bit are unable to offer people a cast iron guarantee that they will win either because the law is clear or because they can't tell who they're supposed to sue because they're landlord is a company, or living off-shore.

[lawdoctor]

Hi again Steve M

 

It seems that I owe you an apology and a thank you and as such I shall deal with them in order;

 

Firstly, I apologise if I incorrectly tainted you (if it can be said) with the label of being a letting agent. By way of mitigation, although the industry is plagued by cowboys my own daughter runs an estate and letting agency of considerable size and as such I naturally accept that there are good and bad in every profession.

 

Secondly, I thank you for not hiding underneath the cyber covers as it were, as is very common with this forums so called experts.

 

Moving swiftly on to the second paragraph of your post, I still consider that 20% measured on any scale of a multi-hundred million pound issue is significant by any standards.

 

With regard to the third paragraph of your post, I agree fully - as I have previously stated the law is a mess but nonetheless it is still the law until which time a court of record decrees that it does not mean in law what parliament clearly intended it to mean.

 

With regard to who an alleged victim of a violation of the tenancy deposit laws contained within sections 212-215 of the 1988 Housing Act could sue, I for one feel that it matters not whether they be a company or landlord on-shore or off-shore - as I have stated previously the Act provides that in law the landlord and agent for the purpose of this Act are one and the same.

 

Is it not possible that perhaps, just perhaps, the legislators intended the law to be binding on any person, corporate or otherwise, who took a deposit in relation to a private residental tenancy agreement to be bound by the legislation or run the risks of the mandatory penalty for failure to adhere to the provisions of the 2004 Act.....if the answer as I submit is 'yes' - then perhaps this would go some way to explaining why the provisions were made 'strict' and 'mandatory'.

 

Of course until the outcome of the current High Court case we can but guess and swap our 'views'!

 

I personally have nailed my legal colours to the mast, as it were. For the avoidance of all doubt my legal view is that when the legal dust settles the provisions of the Act of which we debate will mean exactly what parliament intended them to mean ........ should I be wrong I will of course slink away to lick my legal wounds ........ subject to any appeals, naturally!!

 

Lawdoctor

[Steve__M]

Secondly, I thank you for not hiding underneath the cyber covers as it were, as is very common with this forums so called experts.

 

It is my experience that most of the people providing most of the advice here are relatively open about their level of experience or knowledge, be it personal or professional experience, or simply forum lore (retelling of other people's reported experience).

 

Since you bring up the subject, and since you call yourself "lawdoctor", it might be a good idea to say what your experience is.