Appeal court decision on Deposit protection

clutton_2

With thanks to Painsmith solicitors


At 0945 this morning, 11 November 2010, the Court of Appeal handed down its judgement in the two conjoined cases of Universal Estates v Tiensia and Honeysuckle Properties v Fletcher. The decision was a majority decision of Lord Justices Rimer and Thorpe, with Lord Justice Sedley dissenting.
Facts
The facts in the two cases were as follows. In Universal Estates the tenant was taken to COurt for arrears of rent. The possession claim was adjourned after she indicated her intetnion to counterclaim, although that counterclaim was not for an unprotected deposit. The deposit was then registered with MyDeposits but it was, of course, late, more than 14 days from the date of receipt. The High Court has held, in the case of Draycott v Hannells Lettings, that registration more than 14 days after receipt of the deposit cannot be penalised. However a breach of the initial requirements of the relevant deposit scheme can incur the penalties and it was argued in Universal Estates that the MyDeposits scheme had such an initial requirement. In Honeysuckle a claim for possession for rent arrears was also commenced. The tenant's counterclaimed on the basis that the deposit was not registered. The deposit was protected before the hearing of the matter by the Court, again with MyDeposits.
Therefore the issues before the Court of Appeal were whether it was permissible to protect the deposit more than 14 days after its receipt and at what date there should be a consideration of the protection status of the deposit, at the date of issue of proceedings or at the date of the Court considering the situation at a hearing.
In short, the Court considered that the High Court had decided correctly in Draycott v Hannells and that late protection is acceptable. Where the Court of Appeal has gone further is that it has ruled that provided protection has been done, and the correct information provided, before the Court comes to consider the matter at a hearing then that is acceptable, even after proceedings have been issued for non-protection. Therefore the landlord's deadline for compliance is the Court hearing itself and not the date by which proceedings have been issued. The Court did hold that if a tenant is compelled to issue proceedings to force the protection of a deposit then they are probably entitled to their legal costs in so doing. It should be noted here that the Court emphasised the importance of pre-action conduct and discouraged any attempt to 'ambush' landlords by issuing proceedings for an unprotected deposit without writing to them first.
The Court further held that no scheme can impose an initial requirement that a deposit must be protected within 14 days, a failure to adhere to which will allow a tenant to claim against the landlord. Therefore the current imposition by The Dispute Service scheme of a requirement to register within 14 days is no more than an administrative requirement for that scheme and registrations with that scheme made after 14 days are not invalid for the purposes of tenancy deposit protection legislation although the scheme may consider them violations of its rules and may therefore adjudicate on the deposit in a manner that is against the landlord's interests.
The Court made no comment on what the correct position should be if the deposit is not protected until after the tenancy has ended. This remains a live issue and one which must be considered. All three judges commented that the interpretation which they have been forced into is totally unsatisfactory and they found it hard to believe that this is what Parliament intended when it made the legislation. The consensus certainly appeared to be that the legislation is now toothless and largely without value. The onus now seems to be on Parliament to consider reform of the legislation as a matter of urgency to restore a proper balance.
All three judges commented on the inadequacy of the legislation
Full text of decision.

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N79

Thanks for that Clutton. This was really the inevitable conclusion.

princeofpounds

Yeah thanks. It's a big shame, but judges can't make law and based on what was legislated I think they made the right technical decision. Some good points, some bad points to bear in mind

bad:
- the law is clearly an idiot here
- landlords can protect as late as they like
- the judges seem of the opinion that 14 days cannot be a scheme requirement (why?).
good:
- at least the judges recognise that late protection might still lead to an award of costs
- the judges realise that the law was badly implemented.
- the schemes can themselves decide against landlords for late compliance, although not penalty. Wonder if they will actually do this.

N79

princeofpounds wrote: »

- the schemes can themselves decide against landlords for late compliance, although not penalty. Wonder if they will actually do this.

Only if the LL agrees to use the scheme for arbitration. If the schemes start penalising LLs in this way then LLs who have protected the deposit late will simply not use them for arbitration.

Ben_Reeve-Lewis

Yeah hardly a surprise there.

landlords may still continue to use the schemes but what if large numbers choose to not register unless challenged by the tenant? I wonder what will happen to the schemes themselves who rely on the money to operate?

As I understand it My Depsoits and the TDS are actualy arms of German insurance companies and they have already complained that they arent making the money they envisaged when they tendered for the contracts. TDS have already increased their fees massively because of the shortfall

Recently it was proposed that deposit protection schemes run in Northern Ireland, and the 3 English schemes were invited to tender which they turned down.

One thing I like is the judge's stating that tenants seeking redress follow a pre-action course and not simply ambush the landlord for extra cash at the end of the tenancy

gauly

I particularly like this line:
"if a tenant is compelled to issue proceedings to force the protection of a deposit then they are probably entitled to their legal costs in so doing"

So, you might not even get your legal costs back if you are forced to go to court! Very rubbish indeed.

N79

gauly wrote: »

I particularly like this line:
"if a tenant is compelled to issue proceedings to force the protection of a deposit then they are probably entitled to their legal costs in so doing"

So, you might not even get your legal costs back if you are forced to go to court! Very rubbish indeed.

This is to reflect the fact that it may not be just to issue a costs order where there is no (or little) fault on the part of the LL due to circumstances beyond their control. This was the basis of the Draycott ruling on responsibility, it should equally apply here. This comment ties in with the judges comment about the strong desirability of a letter before action.

I have no idea exactly what the judges have in mind but here is an hypothetical example of the type that I think they are referring to.

T pays deposit day 0.
Day 3 LL pays deposit to DPS.
Bank error means the deposit never arrives at DPS.
Bank does not inform LL of failure.
By day 15 not DPS information received (but delays do sometimes happend)
Day 15 T sues in court without asking LL to check.

In such a case, it may not be fair for the LL to pay the Ts costs. In most cases, where a LL is clearly at fault, costs will be awarded.

neverdespairgirl

the Act still does have some use - for example, a s.21 isn't valid if the deposit's not protected, and the threat of the 3 x can help make a LL protect it late rather than never.

Ben_Reeve-Lewis

Thats true, and while we are on the subject does anyone have an opinion or info in the S21 requirement? The Act simply states that a landlord cant use the ground only claim until the deposit has been protected. If they have already served a S21 does this mean that they have to re-serve upon protection? Or will protection 'Unblock' the proceedings that have already been started through service of the notice?

N79

Ben_Reeve-Lewis wrote: »

Thats true, and while we are on the subject does anyone have an opinion or info in the S21 requirement? The Act simply states that a landlord cant use the ground only claim until the deposit has been protected. If they have already served a S21 does this mean that they have to re-serve upon protection? Or will protection 'Unblock' the proceedings that have already been started through service of the notice?

The former - the wording of the s215 is quite clear (perhaps the only part of chapter 34 that is).

"If a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when— (a)
the deposit is not being held in accordance with an authorised scheme, or

(b)
the initial requirements of such a scheme (see section 213(4)) have not been complied with in relation to the deposit."

So if the deposit was not protected, no S21 can be given so any S21 will need to be served after the deposit is protected.

Ben_Reeve-Lewis

Thanks for clarifying that, it sort of passed me by:)