Where a tenancy deposit has been paid in connection with an assured shorthold tenancy and in order to be able to serve a section 21 notice, the deposit must have been protected – normally within 30 days. Where this is not the case, the only way to be able to serve a section 21 is by repaying the deposit in full or agreeing deductions before service. How to repay the deposit can be difficult because we don’t want to pay by cash in case the tenant denies receiving the money and if we send a cheque, what if it’s not presented? Has the deposit been returned in full? Our advice has been to issue a bankers draft or postal order as that is the safest way.
The High Court has now had to answer the question whether a cheque representing the deposit must be cashed in order to have been returned in full.
In Lingfield Point No. 2 v Hodgson High Court (Queen’s Bench Division) Sheffield District Registry 30 July 2015, the landlord was a company and granted an assured shorthold tenancy from 21 May 2012. The tenant paid a deposit of £375.00 by cheque which wasn’t protected by the landlord.
The landlord wanted to serve a section 21 notice but was unable to do so unless the deposit was returned in full due to the failure to protect within 30 days. The landlord posted a cheque for £375.00 to the tenant on 28 July 2014.
The tenants’ solicitor returned the cheque saying payment by that method was not acceptable and as such was never presented.
On 31 July 2014, the landlord served a section 21 notice which was later followed by a possession claim. The claim was defended on the grounds that the deposit had not been protected nor returned in full as required by section 215 Housing Act 2004. The tenant argued that the section 21 notice could not have been served and was therefore invalid.
The County Court held that payment of the deposit by cheque was an adequate means of returning the deposit and ordered possession. The tenant sought permission to appeal.
The High Court refused permission to appeal and stated that the statutory provisions were there to protect tenants and could not be used as a blunt instrument to defeat landlords’ interests. The tenants had indicated that payment by cheque was acceptable because when they originally paid the deposit it was by cheque. As such there was no real prospect of success if an appeal were held.
According to reports, the court further commented that the absence of authorities on this question arose not from the fact that this was a novel point but because it was a matter of common sense.
In addition to being “common sense”, we think that this is legally correct anyway when considering the law of cheques. In the article referred to earlier about returning the deposit, we go on to conclude in respect of cheques and bankers drafts:
As a further argument that the sending of the instrument is the return of the deposit, the law of cheques is that a cheque is deemed payment on the day it was received and not on the day it actually clears, assuming it clears on first presentation Coltrane v Day  EWCA Civ 342.
Very briefly, Coltrane was a case where a tenant gave the landlord a cheque on the morning of a rent arrears possession hearing in the County Court. In order to be ordered possession, the landlord had to show the tenant was two months in arrears “on the day of the hearing”. If the cheque was deemed paid on the day it was cleared (for example in three days time) then the landlord would be successful. If however payment was deemed upon receipt, the claim would fail.
It was held that payment of a cheque was deemed to be paid on the day of receipt (in this case the day of the hearing) assuming it cleared on first presentation. The hearing was adjourned for seven days to see if it did clear.