Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Potts –v- Densley & Pays

The High Court has handed down its decision in the case of Potts v Densley today. Previous blogs can be viewed here.

We acted on behalf of the Claimant who in this instance was the Tenant with James Browne of counsel.

Facts

The landlord first let the property for a term of one year commencing on 12th May 2007. The property was managed by a lettings agent. A deposit was taken of £1,500, which was correctly registered with the TDS scheme. In 2009 an agreement was made between the parties that a new tenancy would be agreed at a lower rent, without the management of the agents. It was agreed that the deposit would be withdrawn from the TDS and paid direct to the Landlord who would be responsible for protecting it themselves.

In order to assist the Tenant the Landlords agreed not to insist on a further deposit upon this renewal. Instead they agreed to wait for the return of the deposit from the agent and then register it upon receipt. The Landlords received the deposit of £1,590 on 18th June 2009. In the meantime on the 15th June 2009, the Tenant exercised a break clause bringing the tenancy to an end on 15th August 2009.

On the 10th August the Landlord offered to pay the deposit back to the Tenant however, the Tenant refused the deposit and insisted that the Landlord register the deposit with a scheme pursuant to their obligations under the section 213 of the Housing Act 2004. The Landlords failed to do so and the Tenant issued proceedings on the 12th August 2009. The Landlords in response no doubt registered the deposit with the DPS custodial scheme on the 17th August 2009, 2 days after the Tenant vacated.

The Prescribed Information as required by s213 (3) and s213 (6) was never served.

Before Her Honour Judge Hallon, it was held that there had been a breach of the requirement to secure the deposit, because the initial requirements of the scheme can not be complied with after a tenancy has come to an end. This is despite the decision in Tiensia. However, the judge refused to award the penalty of three times the deposit because she held that there had been a technical breach of the requirement to secure the deposit and that given the:

“unusual circumstances of the case, it would not be in the interests of justice to do so”.

She did not deal with the prescribed information at all.

The Tenant appealed.

Two main issues were raised in the appeal. First that the judge had no discretion to refuse to impose a sanction once she had decided there had been such a breach and it thus follows that she was wrong to refuse to award the penalty. Second that the judge erred in failing to deal with the issue of the Prescribed Information.

The Judgment of Today

The Honorable Mrs Justice Sharp when referring to the County Court decision above states at paragraph 23 of her judgment:

“it is obvious that the judge had considerable sympathy with the position of the Landlords on the facts found by her and considered it would be unjust for them to be subject to the sanction provided for non compliance, under section 214 (4) of the Act”.

She then went on to say that to award the penalty for a breach of a technical nature when the deposit was not returned due to the insistence of the Tenant pursuant to section 214 would:

“do a very considerable injustice”.

With regards to the 2 points of appeal, Mrs Justice Sharp upheld the County Court decision and based her reasoning on the decision on Tiensia. That is that Landlords had until the date of the hearing of the Tenants application to comply with the provisions and having secured the deposit before the hearing they had a complete defence to the Tenants application.

On the matter of the prescribed information, Mrs Justice Sharp held that due to the failure to plead this in the particulars of claim submitted by the Tenant, the judge had not erred. The issue over the prescribed information was mentioned in court by the Tenant and also mentioned in the Tenants witness statement. However, it was held that this was not clearly pleaded but had it been the judge would no doubt have dealt with it.

Conclusion

Whilst we welcome the release of the decision the area of law is not concluded. It does appear that you can register the deposit after the tenancy but the judge did not deal with implied or the actual requirements of the scheme because they had not been pleaded. It may be the case that it is an implied “initial requirement” of all 3 deposit schemes that the deposit be registered before the tenancy ends. Even if it is not an implied requirement is it likely that it will become explicitly stated requirement!

There of course remains the decision of Hashemi v Gladehurst which has the potential of changing this decision.

Filed under: England & Wales, FLW Article, , , ,

20 Responses

  1. ontological_shock says:

    You say: “It may be the case that it is an implied “initial requirement” of all 3 deposit schemes that the deposit be registered before the tenancy ends. Even if it is not an implied requirement is it likely that it will become explicitly stated requirement!”

    But even if it is, or becomes, an explicitly stated requirement, how can such a requirement be imposed if it is not supported by statute? e.g. in Universal v Tiensia the deposit was protected under statute according to the CA’s ruling, but effectively not protected according to MyDeposits’ rules, which seems rather a ludicrous situation. It cannot be the case that the authorized schemes may be allowed to invent and impose initial requirements at whim.

  2. PainSmith says:

    The schemes have the ability to change their rules as they see fit. Just recently TDS changed their rules and have done so in the past. The outcome of these cases will no doubt influence the schemes and how they operate.

  3. Hello

    Any possibility of a copy of the judgment being added to your blog please?

    Many thanks

    Adrian

  4. Peter Smith says:

    This was a case where the LL seems at every stage to have been willing to assist the tenant – not insisting on a new deposit before the agent repaid the old and offering to repay the deposit in full on his/her departure – and the tenant, eventually aided by solicitor and counsel, manipulated that willingness to try and get another unwarranted £4,800 out of LL.

    For once justice was done over the unscrupulous misapplication of rules and regulations.Although the underlying principle of this part of the Act was good, it was put together with a combination of incompetence and spite, and I am glad that it is gradually unwinding,

  5. It’s ok, I see it’s on Bailii here: http://www.bailii.org/ew/cases/EWHC/QB/2011/1144.html

    Many thanks

    Adrian

  6. PainSmith says:

    Mr Smith whilst your interpretation of the facts is interesting may I point out:

    The Landlords failed to lodge a deposit despite the fact that the legislation required them to do so. The fact that investment landlords in 2009 do not know that the deposit has to be lodged is shocking.
    The Landlords waited for a month before they lodged the deposit, they received it on the 18th June.
    Given that the legislation makes it quite clear that the deposit if not lodged means the landlord will face a penalty it quite clearly is not unwarranted.
    Justice was not done because the judge found that the landlord had failed to adhere to the legislation but despite this failed to award the penalty.
    The landlords initially stated that the property was in good repair when the tenant vacated and then sought to counterclaim for the same at trial. They then dropped the counterclaim on the court steps on the day of the trial.
    Need I say more……..

  7. Simon says:

    I have a question here – could the tenant have presented this case differently at the County Court (i.e. provided more evidence, better process) which would have helped her at High Court and appeal?

  8. PainSmith says:

    When the process was started by Ms Potts she pleaded that the Landlord had failed to register the Desposit with a scheme. On appeal we could only therefore argue this point. The decision of the High Court did state that had the failure to supply the prescribed information had not been pleaded and so the court could not deal with it. So the answer to your question is yes the grounds pleaded could have been different to those submitted.

  9. Karen Potts says:

    May I correct slightly…
    The LLs received the deposit money the same day the previous deposit started the process of being returned to the tenant.
    The LLs received the deposit 18th June, opened an account with the DPS 17th August (2 months later not one month) but didnt place any money into the scheme until 9th September – almost three months after receipt and a month after the court case started.

  10. Karen Potts says:

    I would also state, for the record, at no time was my deposit offered back to myself in full. Counterclaims for deductions were made throughout – before the case started and during the case too – only to be dropped infront of the judge at trial.

  11. We have had clarification from The TDS and along with mydeposits they hold registrations after the term of the tenancy to be invalid.

    They also state on their website http://www.thedisputeservice.co.uk

    To deal with a dispute where the deposit has been registered late we need to be
    satisfied that:
     the deposit has been registered before the fixed term period of the tenancy
    ends, and
     there is no detriment to the tenant, and
     that the deposit holder intended to protect the deposit, and
     that due to an honest mistake they did not meet the 14 day deadline.

  12. […] May 2011 I am not going to go into much detail about this case as it has been reported admirably by Pain Smith (one of the solicitors in the case) and Nearly Legal. The landlord had failed to protect the […]

  13. David says:

    It is a shame that the facts were so unusual in this case and that both judges thought it would be an injustice to make an award.

    I think there is a good chance that this decision will be overturned in the Court of Appeal.

  14. David says:

    Don’t these decisions make a mockery of the law? What use is the law if the landlord can protect the deposit at any time during or after the tenancy whether or not an action has been brought and still be in compliance? It appears to me that the civil court don’t like private penal laws and will do everything not to impose what is effectively a fine for the benefit of a private party.

    There however remains costs position. Where the claim is for more than £5,000 and the landlord protects the deposit after issue forcing the tenant to discontinue, is the tenant still entitled to its costs up to the date the deposit was protected? Please can you tell us what happened to costs in the Potts case and did the court differentiate between costs before the deposit was protected and after it was protected?

  15. PainSmith says:

    Yes the schemes may see it that way but a distinction needs to be drawn between the purposes of registration and adjudication and whether the deposit is registered for the purposes of the legislation. The Potts case makes clear that for the purposes of section 213 (1) the courts will accept late registration even after tenancy as valid. What the case did not deal with and what unfortunately remains unclear is whether protection after the tenancy breaches 213(4) by not complying with the “initial requirements”, implied or actual, of a scheme. At the moment no scheme that we are aware of has explicitly stated that registration before the end of the tenancy is one of their initial requirements so at the current time its necessary for the court to find that this is an implied requirement.

  16. Karen Potts says:

    David, I was awarded no costs at all

  17. James says:

    I read this with interest. My former landlord did not protect my deposit and is not replying to my requests to return it. Where does this leave people like me? I am investigating submitting a claim to county court but it’s no longer clear what the outcome of such a case would be.

  18. PainSmith says:

    I would strongly recommend that you wait for the outcome of the Hershemi case. We at present do not know when the judgement will be handed down.

  19. Nick says:

    I’m in a similar situation, complicated further by what I consider an unlawful eviction (firstly, they couldn’t lawfully issue a s21 because the deposit wasn’t protected; secondly because it breached the terms of the lease anyway) for which there is also a claim. But anyway, my point is this…

    The landlord applied to protect the deposit after I had vacated the property and using the name of someone I’d never heard of at another property they rent out. I complained to the scheme (MyDeposits) and they expelled the landlord from the scheme – but refused to confirm that my deposit was not protected. Instead I just got a generic letter saying that all the landlord’s deposits would cease to be protected in 3 months (this was last year).

    Whether the deposit was ever protected is, therefore, somewhat contingent upon future judgements as to whether the Scheme Rules are the same as “initial requirements” in statute.

    However, I note that s214(2) states that the 3x penalty also applies if the court is “not satisfied that the deposit is being held in accordance with an authorised scheme” – presumably at the point of the hearing itself.

    Therefore, where the landlord has been expelled from the scheme and protection expired by the time of the court hearing, the court would presumably have to find for the claimant?

    I realise that they could now try to protect it with another scheme and we’d have to go through the whole thing again…but my point is that they couldn’t argue that because the deposit was protected with MyDeposits the first time round there was no case to answer?

    This would seem to hand the enforceability of the law over to the schemes themselves, i.e. if they refuse to accept deposits in these cases the landlord will have no case?

  20. mr kenny says:

    Hi I am a landlord who did not use the scheme as I did not no it was law.when my tenant left my flat was was trashed so I withheld it she went to a solicitor what happens now?

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