Please note: for cases after 6 April / 6 May 2012 this can no longer be relied upon

The wait is over for the Court of Appeal ruling in Tiensia v Vision Enterprises Ltd (t/a Universal Estates) and between Honeysuckle Properties v Fletcher [2010] EWCA Civ 1224 (11 November 2010).

To assist explaining the judgment, we have created some questions and answers

I have just realised I have not protected my tenants deposit. No claim has been made by my tenant in respect of this failure can I now protect the deposit and avoid penalty?

Yes. In Draycott v Hannells [2010] 3 All ER 411 (High Court) it was decided that where a deposit is protected before a claim is made by a tenant for 3 x deposit compensation, then, the landlord would avoid the penalty provisions. This court of appeal case confirmed that Draycott v Hannells was correctly decided.

… Tugendhat J in Draycott (at … paragraph [29]), was also of the view that a scheme time limit is not one of ‘the initial requirements’ within the meaning of the definition in section 213(4). I respectfully agree with him … [Lord Justice Rimer at para 35]

I have just realised that my deposit is not protected when it should have been done one month ago. I want to use the Mydeposits insurance based scheme but the scheme rules say “The full Deposit stated in the AST must be Protected by the Member within 14 Days of receipt from the Tenant.” Does this mean I can no longer comply with the scheme rules?

All three schemes provide in one way or another a time limit in which a deposit must be protected. However, it has been ruled by this case that any time limit imposed by a scheme is not an “initial requirement” of the scheme and therefore is not a breach of section 213(3) Housing Act 2004 (the requirement to comply with initial requirements within 14 days.)

As for the scheme time limit point, Mr Manning submitted that the natural interpretation of section 213(3) and (4) is that the reference in them to ‘the initial requirements’ of a scheme cannot include a reference to any time limit for securing the deposit imposed by the scheme itself, since the legislation itself specifies the time within which the deposit must be secured. The meaning of ‘the initial requirements’ within those sub-sections is therefore necessarily confined to what you have to do in order to protect the deposit, and does not extend to when you have to do it …

…

In my judgment Mr Hutchings and Mr Manning are correct in their submission that the natural interpretation of the phrase ‘the initial requirements’ as used in section 213(3) and (4) is that it does not include any requirement imposed by a particular scheme as to the time within which the landlord must secure the deposit … [paras 34 & 35]

It is to be noted that this rule applies to ALL schemes and as such, any scheme rules which has a time limit as to when a deposit must be protected will not be part of the schemes initial requirements and therefore the penalty of 3 x deposit will not apply for a failure to comply with the time limit.

My tenant has made a claim against me for 3 x deposit and I haven’t protected the deposit or given the prescribed information. Can I now protect the deposit and give the information sometime before the hearing?

One of the main questions in this case was the question as to when a landlord can protect a deposit up to and avoid penalty i.e. was it up to the commencement of proceedings or up to the date of the hearing?

The court ruled that the hearing date is the relevant date and NOT the commencement of proceedings

I agree … that the date of the hearing is the relevant date and do not accept Mr Bowen’s contrary argument. First, there is in my view nothing in the legislation that points to any date earlier than the date of the hearing date. On the contrary, the use of the present tense –’is satisfied’ – in section 214(2)(a) appears to me to support the case for the hearing date; and, consistently with that (albeit in relation to the different breach with which it is concerned), I consider that section 214(2)(b) shows unambiguously that the relevant date for its own purposes is the hearing date. If that is the relevant date for section 214(2)(b) purposes, it would be odd if it were not also the relevant one for section 214(2)(a) purposes [para 42]

I have issued a section 21 notice on a tenant and started possession proceedings in the court. The tenant has defended the case saying I can’t succeed because I haven’t protected the deposit or given the prescribed information. The judge has ordered a hearing. Can I now protect the deposit and provide prescribed information before the hearing and succeed?

No. Section 215 Housing Act 2004 states that no section 21 notice may be given in relation to the tenancy at a time when the deposit is not being held in accordance with an authorised scheme, or the prescribed information has not been given.

This case has made no change to this well accepted law and so although you will avoid 3 x deposit penalty if you protect the deposit now, you will need to first protect the deposit and give the prescribed information, then serve a new section 21 notice and commence proceedings again.

I have commenced proceedings against a tenant after serving a section 8 notice on rent arrears grounds. I protected the deposit within 14 days but the tenant says in his defence that I haven’t provided ALL the prescribed information that I should have and the tenant is claiming 3 x deposit. The hearing is next week, what should I do?

In order for the court to order 3 x penalty, the court must be “satisfied” on the day of the hearing that either the deposit has not been protected OR the prescribed information has not been given. If either has been found, the court “must” order that 3 x deposit be paid. However, because of this case, the correct and full prescribed information can be given to the tenant up to the time of the hearing and the claim for 3 x deposit will fail. You should therefore act quickly and ensure the tenant is given the appropriate prescribed information.

In my judgment Judge Ellis was correct to hold that the pre-condition of a tenant’s application to the court under section 214 is not a failure by the landlord to comply with the ‘initial requirements’ or the notification thereof to the tenant within the 14-day period specified in section 213. It is the failure to comply with either of those obligations at all. It follows in my judgment that if, therefore, the landlord is late in complying with his dual section 213 obligations, but he nevertheless duly does so before any section 214 proceedings are brought by the tenant, the tenant will have no cause of action under section 214 and any claim he brings under it will fall to be dismissed … [para 36]

I received a deposit 18 days ago and I couldn’t protect it because I have been in hospital. I have arrived home to find a section 214 court application through the post from the tenant seeking 3 x deposit compensation for failing to protect the deposit within 14 days. There were no other letters before the court form arrived. I understand from this case I can protect the deposit up to the date of the hearing but must I now pay the tenants legal costs in bringing his claim?

There are occasions when a landlord who fails to protect a deposit will have some of the costs of the tenant to pay if court action is required to make the landlord protect the deposit. However, the court was clear on the procedure to be followed and a letter before action must always be served (unless it is as a counterclaim) and landlords should not be “ambushed”.

… the 2004 Act was enacted at a time when the culture of the conduct of civil litigation had become one under which in ordinary circumstances a claimant should endeavour to avoid the need for litigation by applying any applicable pre-action protocol or otherwise by writing a letter before claim. A tenant ought therefore to write such a letter before making a section 214 claim and so give the landlord the opportunity to remedy his shortcoming and avoid proceedings. The landlord would, I should imagine, ordinarily be ready, willing and anxious to do so (he may, like Honeysuckle, have mistakenly believed that he had already duly protected the deposit) so as to bring to an immediate end the possibility of a section 214 claim and the visiting on him of a painful penalty. Although, however, the tenant ought to write a letter before claim, and his omission to do so may present him with a costs risk if he does not, if Mr Bowen’s argument is right the prospect of a section 214(4) order in his favour may be sufficiently attractive to encourage him instead to ambush the landlord with an unheralded claim and run such costs risk as there may be – a risk that he may regard as making the game well worth the candle. Of course if (as in both the cases under appeal) the claim is made by a counterclaim in the landlord’s action, there will ordinarily be no occasion for the tenant to write a letter before claim. I recognise that section 214 claims are in practice probably more commonly going to be made by counterclaim than by claim, but it appears to me helpful to consider the alternative position that I have. I note that Draycott was a tenant’s claim, not a counterclaim.

These considerations do in my view also tend away from an interpretation of the legislation to the effect that the cut off date for compliance is the issue date of the tenant’s claim or counterclaim. As I have said, the objective of the legislation is not the punishment of landlords but the achieving of proper protection of tenants’ deposits. The legislation should not be interpreted in a sense that implicitly encourages the ambushing of landlords by tenants who have grounds for believing that the landlords have not complied with their section 213 obligations. It should be interpreted in a way that avoids litigation. Litigation will or should be avoided if, following a letter before claim, the landlord promptly puts his house in order. If the landlord declines or fails to do so, then of course it is open to the tenant to pursue his section 214 claim. If the landlord later (before the hearing) repents and remedies his defaults, the claim will still fail, although the tenant will ordinarily recover his costs. He may not recover his full costs, but there is nothing unusual about a claimant not doing so. The tenant will bring his claim knowing of that risk. [paras 43 and 44]

I have read elsewhere that comments in this decision criticise the legislation. Is this right?

It is correct that one out of three judges (Lord Justice Sedley) respectfully suggested that the drafter of the legislation could have worded the provisions better:

The two critical subsections of s.213, (3) and (4), are set out in Rimer LJ’s judgment. S.213(4) defines the initial requirements as requirements imposed by an authorised scheme which fall to be complied with by the landlord on receiving a tenancy deposit. This, if I may say so with respect to the drafter, is thoroughly unhelpful … [para 53]

One must remember though what the tenants in these cases were asking for. They were essentially saying that it was fair that a genuine landlord who genuinely made a mistake and protected the deposit on day 15 should from that point (a) never again be able to serve a section 21 notice in respect of that tenancy and so technically had a lifetime tenancy and (b) must pay regardless of reasons 3 x deposit without any form of defence.

Lord Justice Sedley continues …

For the reasons I have given there is nothing legally (as contrasted with morally) objectionable in the strict liability to a penalty, and no way of avoiding a penal construction of the legislation. There is, however, something approaching overkill in the additional prohibition in s.215 on the recovery of possession. We are left with an intractable dilemma: to drain the legislative scheme of all effect by reducing the remedy for non-compliance to near-impotence, or to give what in my judgment was without doubt the intended meaning to the prescribed 14-day limit, with irreversible economic and proprietary consequences for landlords who fail, even if only through misfortune, to meet it.

We have not been shown and have not asked for the parliamentary proceedings, but I find it impossible to believe that legislators thought they were voting for the first of these outcomes. I find it almost as difficult to believe that they appreciated that the effect of what they were voting for was as drastic as it appears to be. In many cases turning on the meaning of a statute the absurdity or oppressiveness of one reading can legitimately steer the court to a less apparent but more equitable interpretation. But where, as here, it steers the court to an interpretation which is every bit as unacceptable, the canons of construction fall silent. [paras 58 & 59]

However, as Lord Justice Rimer points out, the purpose of the legislation is to ensure that deposits are protected and this judgment ensures that and if a landlord fails he will be ordered to pay 3 x deposit as compensation:

The only remaining point I should deal with is Mr Bowen’s point that the interpretation of the legislation that I favour will have the practical consequence of robbing section 214 of virtually all its force. That is because it will be an unusual landlord who will not, faced with a section 214 claim, ensure that by the time of the hearing he has fulfilled his outstanding obligations under section 213, with the consequence that in practice section 214 will be likely only to bite in the most exceptional and unusual cases. I recognise all of that. Equally, however, it can also be said that in that overwhelming majority of cases the net result will be that the legislation will have achieved its primary objective, that of the due protection of the tenant’s deposit. What more can reasonably be asked of it?

My tenant vacated a year ago and I never protected the deposit. He is now claiming for the return of the deposit and three times compensation. Can he do this now he has vacated, in particular as there was damage to the property and rent owing?

This case didn’t answer this question. However, it is submitted that an ex-tenant may make such an application after they have vacated.

The key argument against this view is that in section 214 which allows the tenant to make an application for compensation, it specifically refers to the “tenant” who can make the application. This could suggest that once they are no longer a “tenant”, they can no longer make such an application.

However in Hashemi & Johnson v Gladehurst Properties Ltd, HHJ Cryan, Clerkenwell & Shoreditch County Court, 9 December 2009, HHJ Cryan had to consider this question. He concluded (quite rightly in our view) that the term “tenant” contained in section 214 includes “ex-tenant” because in Schedule 10 of the Housing Act 2004 (which deals with tenancy deposits) the term “tenant” is used when it can have no other meaning than “ex-tenant.”

If support for such an interpretation is needed it is to be found in the use of the word “tenant” in Schedule 10 where it is clearly dealing with  former tenants. The use of the word throughout the Act must have been intended to bear the same interpretation and it is manifest that in Schedule 10 and throughout the Act it is intended to include a tenant whose tenancy has come to an end.

As the court of appeal ruling discussed in this article clarifies, the question being asked at the time of the hearing is whether the court is “satisfied” that the initial requirements of a scheme have been complied with or not (and prescribed information given). It is submitted, the question remains whether the tenant is a tenant or an ex-tenant. However because of this case, the landlord can simply protect the deposit before the hearing (ideally with the DPS to avoid issues over scheme requirements in this type of scenario) and the ex-tenants claim will fail (see above).

My tenant vacated a year ago. I never protected the deposit but I repaid the deposit in full when he left. He is now claiming 3 x deposit compensation because I never protected the deposit but he does accept I repaid the full amount. Can he do this and what should I do?

This is a difficult one to answer however, it is submitted that the ex-tenant will be entitled to  compensation if the landlord fails to protect the deposit even though they have had the full amount returned.

The key point to remember is the question that is being asked on the day of the hearing. That question (as discussed above) is whether the court “is satisfied” that the initial requirements of a scheme have been complied with AND the prescribed information given. Particular emphasis was given to this question in this court of appeal case:

Moreover, … the tense of the language in section 214(1)(a) and 214(2)(a) is consistent only with an inquiry as whether the ‘initial requirements’ and notification obligations have been performed at all, and not with whether there were performed within a particular period that is now past … [para 38]

If a landlord has failed to comply with the initial requirements of a scheme or failed to give the prescribed information by the time of the hearing, then the answer to the question on the day of the hearing can only be no. In which case, the penalty provisions of 3 x deposit become mandatory.

The contrary argument is that, contained in section 214 is the wording that before ordering the 3 x deposit penalty, the court must order either protection of the deposit or repayment of the deposit. Therefore, if the deposit has already been repaid then how can the court order repayment?

This, I accept is a strange concept. However, consider this situation: Section 214 not only requires that the court is satisfied that the deposit is protected but also that the prescribed information has been given (by the time of the hearing). If a landlord has protected a deposit perfectly within 14 days but has failed to ever give the prescribed information, then, the court must order firstly that the deposit be protected or repaid and “must also” order 3 x deposit. But, how can the court order protection of the deposit if it is already protected? In this example, it is submitted that the court can order protection or repayment even when it is already protected or repaid.

It is therefore submitted, there is no material difference between this example and the case of where a deposit has been repaid in full to the tenant before any hearing.

It seems, the only question that matters when deciding whether to award the penalty of 3 x deposit is “whether the ‘initial requirements’ and notification obligations have been performed at all” by the time of the hearing.

The best advice therefore would be to protect the deposit (with the DPS to avoid potential scheme rules problems) and give the prescribed information. This will ensure the tenants claim fails as per above. At the time of the hearing, you should then ask the court to order the following (or similar):

The deposit of £xxx (insert amount of deposit) that is held by xxx (insert name and address of where deposit is held) is to be repaid to the defendant landlord in accordance with paragraph 4 or paragraph 6 of Schedule 10 Housing Act 2004.

The court should have no problem ordering this because the tenant accepts it was repaid in full and therefore your protection was a mere formality and you will be entitled to full repayment of the deposit. Schedule 10 provides that a scheme who is holding a deposit must repay it if a court orders such repayment.

Note: We accept the county court in Green v Sinclair Investments Limited Clerkenwell and Shoreditch County Court. 11 June 2010 held a contrary view to ours above.

What’s the point of section 213 saying that a deposit must be protected and prescribed information be given within 14 days if the court has now ruled a landlord can protect and give prescribed information after this time?

As we have maintained from the commencement of this legislation, without this date there would be no period of immunity for a landlord to get the deposit protected and a tenant could have in theory (without the 14 day rule) commenced proceedings for a failure to protect after one hour of giving the deposit to the landlord. Therefore, a tenant may issue a pre-action letter on day 15 onwards and follow up with court proceedings if a landlord fails to protect. This was confirmed in this court of appeal case:

… There can plainly be no right to make any application to the court under section 214 before the 14-day period for compliance has expired … [at para 38]

Is this the end of the case?

According to Garden Court Chambers, Ms Tiensia is seeking permission to appeal to the Supreme Court