Please note: for cases after 6 April / 6 May 2012 this can no longer be relied upon
Potts v Densley & Anor  EWHC 1144 (QB)
Thanks again to the Painsmith blog for this one.
The landlord granted the tenant a tenancy of 12 months from 12 May 2007. A deposit of £1,500.00 was paid and duly registered by the landlords managing agent with the tenancy deposit scheme (Dispute Service).
In 2009, the landlord and tenant agreed a new tenancy at a lower rent and without the managing agent. The agent withdrew the deposit from the TDS and paid it to the landlord. (This has the effect that the deposit is treated as though it has just been received by the landlord and the 14 day rule starts over again [sch.10 Housing Act 2004]).
The deposit was paid to the landlord on 18 June 2009. Earlier on 15 June 2009, the tenant had exercised a break clause and gave notice to end the tenancy on 15 August 2009.
On the 10th August the Landlord offered to pay the deposit back to the Tenant in full. However, the Tenant refused the deposit and insisted that the Landlord register the deposit with a scheme. The Landlords failed to do so and the Tenant issued proceedings on the 12th August 2009. The Landlords protected the deposit with the DPS custodial scheme on the 17th August 2009, 2 days after the Tenant vacated.
The prescribed information was never provided.
At the first hearing, the judge held that a deposit cannot be protected after a tenancy had ended but refused to order the penalty of three times deposit “because of the unusual circumstances of the case, it would not be in the interests of justice to do so”. The prescribed information was not dealt with at all.
The tenant appealed on two main points:
- That once the judge had decided that the initial requirements of a scheme had not been complied with, there was no discretion as to whether award the penalty or not and,
- That the judge had made made an error in not dealing with the prescribed information.
On appeal, the judge commented that because the landlord had offered the return of the deposit and the tenant had refused to accept this, to award the penalty due to the landlord’s technical breach of failing to protect the deposit would “do a very considerable injustice”.
The court ordered that there was no breach of the initial requirements despite the deposit being protected after the end of the tenancy because of the decision made by the Court of Appeal in Tiensia whereby a landlord can protect a deposit up to the date of the hearing.
On the prescribed information point, the court held that this had not been pleaded properly in the particulars of claim and so the judge had not erred in not dealing with it.
As we have previously suggested, it would seem the Tiensia case was meaning quite literally up to the date of the hearing for protecting the deposit irrespective of whether the tenancy has ended or not. The County Court case Gemma Shepley v Majid Yassen, Tameside County Court, Thursday 13th January 2011 (Unreported) overruled.
Crucially in this case, the landlord used the DPS custodial scheme to protect the deposit late. As we have stated on numerous occasions, this is by far the safest scheme to use if protecting after 14 days (our advice remains to always protect a deposit within 14 days of receipt).
On the Painsmith blog, it is commented:
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!
I don’t hold this view.
I see the problems with the insurance based schemes and their initial requirements but in my view Tiensia will prevail (like in this case) unless there is an actual change to the legislation.
It seems well accepted that an “ex” tenant can make an application for the three times deposit penalty. If the court is not satisfied at the “hearing” that the initial requirements of a scheme have been complied with, then they may order the person holding the deposit to either (a) protect the deposit with the custodial scheme or, (b) repay the deposit, as the court sees fit.
If it is an implied (or explicit) initial requirement of the DPS that they won’t accept protection after the tenancy has ended, then protection with the custodial scheme wouldn’t be available to the court contrary to the legislation requiring that option be available.
The Judgment is available here