Summaries of Cases Involving Tenancy Deposits and the Housing Act 2004

Summaries of cases involving tenancy deposits and the Housing Act 2004

Nic Madge (5 June 2011)

Court of Appeal

Hashemi v Gladehurst Properties Limited

[2011] EWCA Civ 604, 19 May 2011

In 2007, Gladehurst let a flat to Mr Hashemi and Mr Johnson under an assured shorthold tenancy for a fixed term of one year. The rent was £2,080 per month. They also paid a deposit of £6,240 which was held by the landlord as stakeholder. The deposit was never registered or paid into a tenancy deposit scheme. Instead, it was retained by Gladehurst in its own bank account until October 2008 when the tenants vacated the flat. In February 2009, both tenants claimed a sum equal to three times the deposit under Housing Act 2004 s214. District Judge Manners struck out the claim on the ground that it had been made after the tenancy had come to an end and that therefore the provisions of s214 no longer applied. HHJ Cryan allowed the tenants’ appeal against the striking out.

The Court of Appeal allowed an appeal by Gladehurst. The power of the court to make an order under s214(3) and (4) is no longer exercisable once the tenancy has come to an end. The grounds for a s214 application cease to exist once the lease expires and no order under either s214(3) or (4) can therefore be made after that date. From that moment, the application ceases to be “such an application” as is described in s214(2).

UK Housing Alliance (North West) Ltd v Francis

[2010] EWCA Civ 117; 24 February 2010; [2010] HLR 28

Mr Francis entered into a sale and leaseback contract relating to his home with UK Housing Alliance. He was paid 70% of the sale price on completion and would receive the balance of 30% after ten years on the giving up of possession. The contract provided that UK Housing Alliance might retain 30% of the purchase price if it terminated the tenancy.

The Court of Appeal determined that this provision was not an unfair term within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 SI No. 2083 para 5. It also held that the payment of the final 30% to Mr Francis was not a deposit within the meaning of Housing Act 2004. The references in that Act to “paid”, “received”, “repay” and “transfer of property” were “inapt … to describe a situation in which a tenant pays nothing but is the person to whom money is paid.” [para 9]

Vision Enterprises Ltd (t/a Universal Estates) v Tiensia

[2010] EWCA Civ 1224; 11 November 2010; [2011] L&TR 6; [2011] HLR 10

Universal Estates granted Ms Tiensia an assured shorthold tenancy. The deposit of £2,400 was paid in instalments. Later, the landlord sought possession relying on HA 1988 Sch 2 Grounds 8, 10 and 11. Ms Tiensia defended the possession claim and counterclaimed for a payment under HA 2004 s214(4). The landlord subsequently registered the deposit with Tenancy Deposit Solutions Ltd, an online, insurance-based, tenancy deposit scheme. The certificate was faxed to Ms Tiensia on 3 November 2008. The terms of the scheme (as set out in the Information for Tenants leaflet) stated: ‘Within 14 days of receiving the deposit from you, your landlord/agent must protect the deposit with the scheme as well as provide to you details of how your deposit is being protected and what to do if there is a dispute about the repayment of your deposit at the end of the tenancy agreement.’ On an application for summary judgment on the counterclaim, a district judge accepted that the ‘initial requirements’ of the scheme itself (as well as s213) required the landlord to protect the deposit and provide the required details within 14 days and that, therefore, this requirement could not be satisfied once the 14 days had passed. He ordered the landlord to pay Ms Tiensia £7,200. HHJ Ellis allowed an appeal, holding that the sanctions in s214(3) and (4) did not apply where the landlord had complied with the requirements of the scheme, and provided the information to the tenant by the date of the hearing.

The Court of Appeal, by a majority, dismissed Ms Tiensia’s further appeal. Rimer LJ, with whom Thorpe LJ agreed, stated that the pre-condition of a tenant’s application to the court under s214 was not a failure by the landlord to comply with the ‘initial requirements’ or the notification thereof to the tenant within the 14-day period specified in s213. It was the failure to comply with either of those obligations at all. So, if a landlord is late in complying with the dual s213 obligations, but does so before any s214 proceedings are brought by the tenant, the tenant has no cause of action under s214. Such an interpretation was not only supported by the language of the Act, but was also consistent with the purpose of the legislation which was to achieve the due protection of deposits paid by tenants, ideally within the 14-day period but, if not, then later. It could “not be its purpose to punish landlords who may for example, for innocent reasons, be just a day late in securing such protection.” [para 40] Further, the landlord has until the hearing of the tenant’s s214 application to comply with the s213 ‘initial requirements’ and notification requirements. If there is compliance before the hearing, “it must follow that the tenant’s section 214 application will fail although no-one suggested that in such a case the tenant would not ordinarily be entitled to recover from the landlord the costs of his claim.” [para 41] Sedley LJ dissented.

(The same conclusion was reached in Honeysuckle Properties v Fletcher which was heard simultaneously.)

High Court

Draycott and Draycott v Hannells Letting Limited

[2010] EWHC 217 (QB); 12 February 2010; [2010] HLR 27; [2010] L&TR 12

On 28 February 2008, Derby Build Ltd (“the actual landlords”) granted the Draycotts an assured shorthold tenancy for twelve months. Hannells were the letting agents for the actual landlords. The agreement provided that the tenants were under an obligation to pay a deposit of £2,700 to Hannells who were to hold it as stakeholders as security for the tenants’ performance of their obligations under the agreement. The deposit of £2,700 was credited to Hannells’ account on 4 March 2008. This was a deposit which was required to be protected under Housing Act 2004. It was registered and lodged with the Deposit Protection Service (“DPS”) on 19 May 2008. Their terms and conditions provided “The Landlord or Letting Agent is responsible for ensuring that Deposits are submitted for protection within 14 calendar days of the date of receipt by the Landlord”. The tenants were informed of the payment to DPS on 21 May 2008. The tenants claimed that there was a failure to comply with the initial requirements and brought proceedings under s214(4) for three times the amount of the deposit. Hannells argued that (1) a s214 claim could only be brought against the actual landlord; and (2) no order could be made under s214(4) where the tenant commenced a claim at a time when the deposit was in fact protected. HHJ Lea rejected both arguments. Hannells appealed.

Tugendhat J held that HHJ Lea’s interpretation of the meaning of “landlord” in s214(4) was “clearly correct”. The words of s212(9) were clear and unambiguous. There was no occasion to look at Hansard or to any other extraneous material to interpret s.214. The words in s214(3)(a) “the person who appears to the court to be holding the deposit” were not otiose. They limited the scope of any possible order under s.214(3)(a) to the person holding the deposit. They prevented such an order being made against any other person who would come within the statutory definition of the landlord – for example a letting agent who, at the time of the making of the court order, was not holding the deposit. No such limitation would be appropriate in s214(4). The penalty should be imposed on the person who was responsible for the failure to comply with s213. In this case that was Hannells, not the actual landlord.

After considering the definition “the initial requirements” in s213(4), Tugendhat J held that the obligation to make a payment into the scheme was the initial requirement of the scheme, and not the requirement that that be done within 14 days. The time limit of 14 days was a requirement of s213(3). It followed that there was a breach of s213 during the period in which the deposit was not lodged with the scheme. However, it “would be a strained interpretation” to interpret s214 so that the 14 day time requirement was to be considered a part of the initial requirements of the scheme. If the 14 day requirement was not part of the initial requirements of the authorised scheme, then payment of a deposit into the scheme more than 14 days after its receipt, but before the tenant commenced proceedings, did not come within s214(2)(a), and the court could not make an order under s.214(3) or (4). Accordingly, Tugendhat J allowed the appeal.

Potts v Densley

[2011] EWHC 1144 (QB); 6 May 2011

Ms Potts was an assured shorthold tenant. She was obliged to pay £1,590 to her landlords, Mr Densley and Ms Pays, as a deposit. Due to an error by her bank, the deposit was paid late. Ms Potts exercised a break clause, giving notice of termination of the tenancy. The deposit was only received by the landlords after that notice had been given. Ms Potts refused the landlords’ offer to pay the deposit back to her directly, requiring it to be paid into a custodial scheme. Shortly afterwards, she issued a claim for £4,770, being three times the amount of the deposit pursuant to Housing Act 2004 ss213 and 214. The deposit was not paid into a custodial scheme until two days after the tenancy had come to an end, although that was nearly a year before the date of the hearing. The prescribed information was not provided to Ms Potts at all. HHJ Hallon dismissed the claim. She decided that there had been a technical breach of the requirement to secure the deposit, but refused to impose the sanction laid down by s214(4) on the grounds that in the unusual circumstances of the case, it would not be in the interests of justice to do so. Ms Potts appealed.

Sharp J dismissed the appeal. Section 214(4) is mandatory in that once a finding has been made that a deposit has not been secured in accordance with the Act, or that the prescribed information has not been provided, there is no discretion to refuse to make an order for the payment of three times the deposit sum under s214(4. Once the judge had determined that there had been a breach of s213(4), she was wrong therefore to refuse to make an order under s214(4). However, following Vision Enterprises Ltd (t/a Universal Estates) v Tiensia [2010] EWCA Civ 1224, [2011] HLR 10, Sharp J upheld the judge’s decision on the ground that the landlords had until the date of the hearing of the s214(4) claim to comply with the provisions of s213(3). They had done that, albeit after the determination of the tenancy. Accordingly, they had a complete defence to the s214(4) claim.

County Courts

Baafi v Mapp

Central London County Court; 24 June 2010

Ms Mapp was the assured shorthold tenant of a house owned by Ms Baafi. A deposit was paid by the tenant and registered by the landlord with the Tenancy Deposit Scheme provider "My deposits.co.uk". The certificate provided by My deposits.co.uk stated on its face "Part 1 [of the certificate] does not satisfy the legal requirement for the landlord/agent to tell the tenant what to do if at the end of the tenancy agreement the landlord/agent or tenant cannot be contacted. Nor does it explain the circumstances in which the landlord/agent will retain part or all of the deposit. This information will normally be included in the tenancy agreement." The tenancy agreement had been drafted before the commencement of the tenancy deposit scheme legislation and so made no specific reference to tenancy deposit schemes or the prescribed information required by Housing Act (HA) 2004 s213(5) and the Housing (Tenancy Deposits) (Prescribed Information) Order 2007. It was common ground that the tenant had not been given any information other than that contained in the My deposits.co.uk literature and the tenancy agreement. In a possession claim, at first instance, District Judge Gerlis applied what he called a "purposive approach" and decided that, so long as the deposit had been put into a scheme by the landlord, the lack of the prescribed information did not prevent a landlord from seeking possession by using a HA 1988 s21 notice. He therefore made an order for possession and dismissed the tenant's counterclaim for three times the deposit. The tenant appealed.

Allowing the appeal, HHJ McMullen Q.C. found that as the statutory framework was clear, a purposive approach to the legislation was not necessary. He also stated that had a purposive approach been necessary, he would have found that the purpose of the regulations was to protect a tenant when a landlord disappeared after taking a deposit. The tenancy deposit scheme certificate in this case said on its face that it did not provide all of the information required by the regulations. The tenancy agreement was an "archaic" document which had been drafted before the introduction of tenancy deposit legislation and did not comply with the regulations. He therefore found that a s21 notice could not be relied upon until the information in the regulations had been provided to the tenant. He set aside the possession order and allowed the counterclaim for three times the deposit. He held that the court had no discretion in the matter if the regulations had not been complied with.

Beal v McCartney

Plymouth County Court, 12 March 2008

On 1 March 2008, Ms McCartney granted Mr Beal a six-month fixed-term assured shorthold tenancy. Mr Beal paid a deposit of £550. The tenancy agreement stated that: ‘The deposit £550.00 … will be registered with one of the government authorised tenancy deposit schemes (the “Tenancy Deposit Scheme”) in accordance with the Tenancy Deposit Scheme Rules’. Mr Beal received no details of the scheme into which the deposit was paid. On 13 September 2008, Mr Beal received a letter from NatWest Bank addressed to ‘the occupier’ advising that a warrant for eviction was being applied for (as a result of his landlord’s mortgage arrears). On 15 October, he received a letter from solicitors advising that the date of eviction would be 22 October. On that date, he was evicted. Ms McCartney did not respond to a letter before claim requesting return of the deposit and three times the amount in compensation.