Most landlords and agents are aware of the current provisions relating to tenancy deposit protection under the Housing Act 2004. Many will also be aware of the damage that has been done to the provisions by the many, many, many, many court decisions. As a reminder two of the Court of Appeal decisions:
Tiensia v Vision Enterprises Ltd (t/a Universal Estates) – a landlord can protect the deposit at any stage, even if more than 14 days have elapsed since it was received, without penalty as long as they do so before the case comes before a court.
Gladehurst Properties Ltd v Hashemi – a tenant could not bring a claim for an unprotected deposit at all once the tenancy was over.
The government has therefore resolved the problems posed by these cases by radically amending the legislation. This is being done by way of the Localism Act, which should come into force on or around the 6th April.
The New TDP Legislation
The changed legislation has three components:
1. Alteration of the current 14 day timescale for protecting the deposit;
2. The closing of current loopholes exposed by the courts;
3. Change to the current regime of penalties.
1. Under the old current provisions the landlord is obliged to protect the deposit and provide the prescribed information to the tenant and any relevant person within 14 days of receipt, however this 14 days will be changed to 30 days from the date of receipt.
2. The decisions in Tiensia and Hashemi will no longer assist landlords who have failed to register the deposit within the 14 days. Therefore, a landlord will be obliged to protect the deposit within 30 days and if he fails to do so he is in breach of the legislation and the tenant can immediately issue proceedings against him or his agent. Protection after 30 days, or after issue of proceedings, is not sufficient to cure the landlord’s failure. Landlords will not be able to argue the Hashemi point once the tenancy is over either as tenants are also going to be entitled to issue proceedings once the tenancy has ended. The so-called ‘must also’ loophole, which allowed landlords to return the deposit to a tenant before a hearing and then assert that the court could not return that money to the tenant and therefore it could not ‘also’ make an award of the three times penalty, has also been closed by the simple expedient of removing the word ‘also’ from the text of the legislation.
3. The draconian three times the value of the deposit penalty will also cease. The court will have a discretionary power to award a penalty of between one and three times the value of the deposit. Therefore, a landlord who has protected the deposit as soon as they became aware of the problem and acted reasonably will be penalised at the lower end of the scale while landlords who have been less cooperative will find themselves penalised at the top end of the scale. If a landlord has however failed to protect they will be liable for not less than a penalty of one times the deposit.
What has changed?
This all means that the Tiensia and Hashemi decisions will not have any force after the 6th April. However, many parts of the legislation are wholly unchanged. There is no change in the definition of a deposit, or the restriction on taking property as a deposit instead of money. So, court decisions which interpret these unchanged parts of the legislation are not affected.
There is no change in the requirement to protect the deposit within a set time after it has been received in connection with an AST. So money that the landlord or agent has obtained which is intended to be used in relation to an AST agreement falls within the legislation.
Therefore, the county court guidance that states that taking the last months rent in advance at the start of the tenancy is probably a deposit remains valid, as does the Court of Appeal decision which holds that a promise to pay money at some future date does not qualify as a deposit, as this requires money to be paid by the tenant with the intent that it will be returned. Likewise, the obligation to serve the prescribed information properly and in full also remains unchanged. It also remains the case that a lettings agent is liable for a failure to protect the deposit and can be sued in preference to the landlord. However, the advent of the new variable penalty would now allow a court to make an order against the agent with the penalty fixed at the lower end of the scale if they were not responsible for registering the deposit.
One component of the Hashemi decision also remains valid that is that any claim for an unprotected deposit must be taken by all the tenants together and not by one acting unilaterally without the consent of the others.
Section 21
Where the deposit has not been registered and the prescribed information not sent to the tenant within 30 days the landlord only really has one option if he seeks vacant possession. That is to hand the deposit back to the tenant and the serve the notice. Landlords will of course not be happy about this as many like the security of being able to call for that money when there are dilapidations, so this is all the more reason for getting it right.
What do you need to do now?
It is not clear whether the new provisions will apply to tenancies that began before the 6th April 2012 however we advise that agents and landlords should begin to check agreements now and register deposits and provide prescribed information if they discover they have not done so to avoid the new scale penalties.
Filed under: England & Wales, FLW Article, comment, deposits, Housing Act 2004, litigation, tenancy agreements
24 April, 2012 • 09:10 4
Daejan v. Benson: where are we at?
We have made various posts about service charges etc on long leaseholds but still have questions asked about the infamous case of Daejan v. Benson.
To recap this started life as an LVT claim as to whether service charges were recoverable or if they were capped due to a failure by Daejan to comply with Service Charges (Consultation Requirements) (England) Regulations 2003 and subsequently on application to dispense with the need to consult under the Landlord and Tenant Act 1985. In both instances the LVT found against Daejan who appealed to the Upper Tribunal (Lands Chamber) who in November 2009 upheld the LVT decisions. So off went Daejan to the Court of Appeal.
The Court of Appeal gave its judgment in late January 2011 (Daejan Investments Ltd v Benson & Ors). The Court of Appeal upheld the previous decisions and therefore found against Daejan. Not put off Daejan sort leave to appeal to the Supreme Court and was granted the same at the end of June 2011. Currently we understand that the matter is likely to be heard by the Supreme Court and judgment given towards the end of this year.
So where does this leave the law? If you are a Landlord (whether arms length or residents) you must ensure that you comply with the Section 20 Consultation requirements to the letter! To do otherwise leaves you open to significant risk that costs will not be recoverable. As the law stands the financial consequences to the freeholder are not a matter for the LVT to take account of when considering prejudice. What needs to be shown is that a failure to comply must not cause any genuine prejudice to the Leaseholders. Whilst LVT’s may have substantial sympathy with residents management companies under the regulations no differentiation is made. LVT’s currently are likely to take a strict view given the fact that the current statement of the law was supported by both the Upper Tribunal (Lands Chamber) and the Court of Appeal.
Landlords and those advising them do have options. Given the serious ramifications of a decision going against a Landlord after works have been completed it is worth bearing in mind that they can apply for a prior determination. When there is opposition to a scheme and it is clear from the conduct of some leaseholders that they will challenge the works this may mean despite there being a delay that an application should be made to the LVT. Given most LVT panels can hear cases with fairly short timescales ( assuming no appeals) then this can be factored in to the process and quotes etc can be obtained which perhaps have a longer “shelf life” than normal to allow for an application. It seems to us that given the various rules and regulations specifically allowing prior determinations this must be the prudent step given that it provides Landlords with a safety net to check compliance if any doubt in the Landlords or their agents mind.
We will of course have to see what view the Supreme Court takes and we will be sure to blog on this when we know more!
Filed under: England & Wales, FLW Article, comment, legislation, long lease, procedure, Section 20