When I read about the latest tenancy deposit case Tummond, R (on the application of) v Reading County Court & Anor  EWHC 1039 (Admin) (10 April 2014) on the Nearlylegal blog I must say I wasn’t convinced about the outcome at first. It goes against what we’ve been saying pretty much since the introduction of tenancy deposit schemes. However, I must now confess after reading a few times and pondering for a couple of days, the Guild may be for turning.
The question being asked is whether a section 21 notice can be served early into the tenancy, before the deposit has been protected and if the notice is valid as long as the deposit was subsequently protected within the statutory timeframe of 30 days.
There is slight confusion over the start dates in the judgment but it seems the landlord granted an assured shorthold tenancy to the tenant commencing on 18 December 2012 for an initial term of 6 months.
The tenancy agreement (which was slightly out of date) stated at para 4:
“The tenant shall pay to the Landlord a deposit of £1,390 (one thousand three hundred and ninety pounds) comprising payment of £695 (six hundred and ninety five pounds) on or before the signing of this agreement and three cheques each to the value of £232 and dated 20/01/13, 20/02/13 and 20/03/12 respectively, and the Landlord will register the deposit with the Tenancy Deposit Solutions within fourteen days of receipt and pay the appropriate protection fee.” (emphasis added)
And continued at para 11:
“Under the Housing Act 2004, an obligation has been placed on Landlords to safeguard deposits in one of three Government approved schemes, as chosen by the Landlord. Your deposit monies will be protected under our membership with Tenancy Deposit Solutions, 3rd Floor, Kingmaker House, Station Road, New Barnet, and Hertfordshire, EN5 INZ. Tel 0871 703 0552 and www.mydeposits.co.uk. Effectively this guarantees the safe keeping of your deposit payment throughout the Tenancy…” (emphasis added)
On the same day as the start of the tenancy (18th December) the landlord served a section 21 notice on the tenant stating that the landlord required possession at the end of the fixed term of the tenancy.
The deposit was properly registered and the deposit protection certificate issued by the scheme showed that the deposit had been received on 22 December 2012 and protected on 2 January 2013. The prescribed information had also been given within the 30 days (on 2 January 2013 by the look of it).
In June 2013, after the fixed term had expired, the landlord sought to recover possession relying on the notice served in December 2012.
The tenant defended the proceedings on the basis that section 215(1)(a) Housing Act 2004 says:
(1) Subject to subsection (2A), 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) section 213(3) has not been complied with in relation to the deposit.
The tenant therefore asserted that as the deposit was not being held in accordance with an authorised scheme “at a time when the section 21 was served” (see 215(1)(a) above), the section 21 could not be replied upon.
On 1 October 2013, DJ Devlin struck out the tenants defence and ordered possession for the landlord.
Application to set aside and permission to appeal
A warrant for possession was obtained and the tenant was notified that it was due to be executed on 12th November 2013. He applied to set aside the order for possession, which was struck out on 28th October 2013 by DJ Parker.
The tenant sought permission to appeal to a circuit judge which was heard on 12 November 2013 where the tenant repeated his argument that the section 21 notice was of no effect because it was served at a time when the deposit was not held in accordance with a statutory deposit scheme.
The court held that the deposit was “held in accordance with an approved scheme” (at the time of service of the notice) and the tenants permission to appeal was dismissed. The tenant appealed this decision to the Court of Appeal who pointed out there was no appeal against seeking permission to appeal and that the only remedy was by way of judicial review.
The tenant sought a judicial review of the courts refusal to give permission to appeal. A judicial review in these circumstances will only be successful “in very rare cases” and even if the lower court was wrong, that alone would not normally be exceptional enough.
The court dismissed the tenants application for a judicial review because the circumstances in the case were not exceptional enough. However, rather helpfully the court went onto consider the claim just in case that conclusion was incorrect.
Section 21 notice and deposit protection
In arguing the case, the tenant pointed out
that the tenant`s interpretation is consistent with the view of the editors of the Encyclopaedia of Housing Law and Practice who state in the commentary to section 215 “This provision may well have the effect of ending the practice used by some landlords of serving notice under s.21 at the outset of the tenancy, save in the unlikely event of landlords being able to comply with the deposit requirements before the start of the tenancy.” (at paragraph 1–4182.268.2). It was submitted that that is precisely the circumstances of this case – the landlord purported to serve a section 21 notice at the outset of the tenancy but before the deposit had been protected.
In reply to this, the High Court said:
Section 215 is headed “Sanctions for non-compliance”. However, there has been no non-compliance in this case. The statute requires that the deposit be protected within 30 days (s.213 (3)). This was done. The statute also requires that the prescribed information referred to in s.213 (5) be provided in substantially the prescribed form within 30 days (s213 (6)). This was also done. In so far as there were any other “initial requirements” of the authorised scheme these were complied with within the 30 day period, and indeed by 2nd January 2013. If there has not been any “non-compliance” it is difficult to see what justification there can be for “sanctions” predicated on there being such “non-compliance”.
Further, the court held that the contractual obligation placed in the tenancy (albeit with the wrong number of days to comply) was important as it showed intent by the landlord to comply with the initial requirements of a scheme:
… In this case the landlord was contractually bound by the tenancy agreement to protect the deposit under an authorised scheme from the moment of its receipt … thereby satisfying the requirements of s.213 (1)…
And further said:
In my judgment the answer to these difficulties on the facts of the present case is that one can “hold” the deposit “in accordance with an authorised scheme” before the deposit is protected … her obligation so to deal with the deposit also means that from the moment of receipt the deposit was also being “held” in accordance with an authorised scheme. At all times thereafter the money was dealt with in accordance with the scheme requirements.
In relation to prescribed information, 215(2) provides:
(2) Subject to subsection (2A), if section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.
The court said:
…there has been no failure to comply with section 213(6). Section 215(2) only applies “if section 213(6) is not complied with”. Under section 213(6) the landlord has 30 days for compliance. It is only if he fails to comply within the prescribed 30 day period that there is a non-compliance which may bring section 215(2) into operation. That did not occur in this case.
I suppose we like many others have fallen into the trap of reading section 215(1) literally when it says (shortened):
(1) … 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 …
And, interpreting that to mean “protected with an authorised scheme”. However, it’s important to remember that at no point in the legislation is there a requirement to “protect” a deposit. This is simply a word used by schemes and commentators for simplicity but technically not used in the legislation.
There are in essence two duties in relation to deposits for landlords (ignoring prescribed information for a moment). These duties are found in section 213(1) and (3). Starting with 213(1), which provides:
Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.
Note here there is no time limit to comply. The requirement is immediate from the point of receipt. It is because of this line that we hold the view that a letting agent who passes the deposit to a landlord client after receipt of a deposit is in breach of the rules because to do so is not “dealing with the deposit in accordance with a scheme”. We’re not aware of a single scheme which allows a person to pass a deposit to another person for them to protect and in essence contract out of the schemes.
Also, as the High Court has pointed out in this case, the schemes do allow a landlord or agent to hold the deposit for the period of the 30 days whilst they register the deposit with them. Therefore I would tend to agree that holding a deposit for the first 30 days is dealing with the deposit in accordance with a scheme. In any event, it’s certainly not prohibited by any of the schemes.
Then, section 213(3) provides:
Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 30 days beginning with the date on which it is received.
This is the second part of the duties and again notice that nowhere does the law require a deposit to be protected. It simply requires that “the initial requirements of an authorised scheme must be complied with” within 30 days.
“Initial requirements” are defined as “such requirements imposed by the scheme as fall to be complied with by a landlord on receiving such a tenancy deposit”. Simply put, the scheme rules. But, not the whole terms and conditions but just those which apply when a deposit has been received. So, for example the registration of the landlord (or agent), provision of details about the tenancy and transfer of the deposit (custodial) or payment of a fee (insured).
Crucially, the initial requirements do not prohibit the holding of the deposit as long as the aforementioned items have been completed at some point within the statutory timeframe (30 days). Arguably, because the timeframe of all schemes matches that of the statutory requirements , the initial requirements specifically allow the landlord to continue to hold onto the deposit until the initial requirements are completed.
Therefore, it seems section 215 which prohibits service of a section 21 in certain circumstances can be considered as follows:
(1)(a) the deposit is not being held in accordance with an authorised scheme
This applies if a deposit is being held somehow inconsistent with an authorised scheme. For example, as we submitted earlier, if an agent passes a deposit to somebody else (e.g. to the landlord) to protect (comply with initial requirements), that may not be “holding the deposit” in accordance with a scheme even though the 30 days might have not yet expired. However, as shown earlier, holding the deposit in a landlords account during the first 30 days from receipt is dealing with the deposit in accordance with the scheme rules.
(1)(b) section 213(3) has not been complied with in relation to the deposit.
This sanction applies if the initial requirements (scheme rules which require registration of the deposit etc.) have not been complied with within 30 days (see 213(3)). Therefore, once 30 days has passed there is no going back and a section 21 cannot be served until certain other actions have been taken .
We would just like to add that the Guild does not and has never condoned the serving of a section 21 notice at the commencement of the tenancy and this case does not change that (except in a few specific circumstances). Our view is that if a landlord wants a tenant to vacate then at that point and no sooner should a notice be served. We think the serving of a notice at the commencement only causes upset very early on because the tenant does not feel like they have even been given a chance. I appreciate that many will argue that it helps landlords because they avoid the wait for a section 21 should a problem occur early on. However, on a six month tenancy, the landlord can’t commence proceedings until expiry of the term on the basis of the 21 anyway so why not just serve it month 3 1/2 or 4 if there is some problem? We would also still worry about the problem of serving on the same day as commencement as how to show which came first – notice or tenancy? Only a “landlord” can serve notice on a “tenant” so if the notice is first then it can’t be valid.
Despite this case, the best advice is still to get the tenancy out of the way, get the deposit protected and then serve notice a few days in if you want to do it early into the tenancy. 
- In Tiensia v Vision Enterprises Ltd (t/a Universal Estates) and between Honeysuckle Properties v Fletcher  EWCA Civ 1224 it was held that any mention of a timeframe within the scheme rules was not an initial requirement of the scheme but simply repeating what the statutory time limit was. ↩
- See this article about how to serve a section 21 if a deposit has not been protected within 30 days. ↩
- We don’t particularly want to go down the route of timings in this article as technically in housing, the law does not take account of fractions of a day and so presumably when both are done at commencement, both are done at an identical time simultaneously. An article for another day perhaps. ↩