Provisions aimed at safeguarding residential tenants’ deposits came into force on 6 April 2007. They were enacted to protect tenants whose landlords become insolvent or refuse to repay deposits at the end of a tenancy.
Under the legislation, landlords must protect deposits received from assured shorthold tenants with an approved tenancy deposit scheme within 14 days of receipt. The sanctions for non-compliance are penal. The landlord will be unable to serve a section 21 notice to terminate the tenancy and recover possession and it will be liable to pay the tenant a sum equivalent to three times the deposit amount.
Provisions aimed at safeguarding residential tenants’ deposits came into force on 6 April 2007. They were enacted to protect tenants whose landlords become insolvent or refuse to repay deposits at the end of a tenancy.
Under the legislation, landlords must protect deposits received from assured shorthold tenants with an approved tenancy deposit scheme within 14 days of receipt. The sanctions for non-compliance are penal. The landlord will be unable to serve a section 21 notice to terminate the tenancy and recover possession and it will be liable to pay the tenant a sum equivalent to three times the deposit amount.
Legal opinion on the effect of the legislation has been divided. Consequently, the courts have dealt with a series of disputes, culminating in Vision Enterprises (t/a Universal Estates) v Tiensia [2010] EWCA Civ 1224; [2010] 49 EG 80. The decision confirmed that landlords can escape liability for the financial penalties imposed by the legislation by protecting a tenant’s deposit at any time before the date of the court hearing to determine whether the tenant is entitled to a penalty payment. The judgment clarified the law but left other issues unresolved.
In Potts v Densley [2011] EWHC 1144 (QB); [2011] 19 EG 97 (CS), the landlord failed to protect the deposit during the tenancy, but, at the insistence of the tenant, who refused to accept the return of the money, paid it to an authorised deposit scheme just after the tenancy ended. The tenant claimed that she was entitled to a penalty payment because the landlord had failed to comply with the legislative requirements within 14 days of receiving her deposit.
The county court judge agreed that the landlord had failed to protect the deposit within 14 days but rejected the tenant’s claim on the ground that it would be unjust, on the facts, to require the landlord to pay the penalty. The tenant appealed to the High Court and sought to distinguish Vision Enterprises (which was decided after the county court had heard her case) on the basis that it is impossible to comply with the statutory requirements after a tenancy has ended.
The High Court found in favour of the landlord. The judge agreed that the tenant would have been entitled to a penalty payment if the landlord had not protected the deposit, but refused to distinguish Vision Enterprises. He said that it was difficult to see how a party could be described as “the landlord” when applying the sanctions for non-compliance without also qualifying as “the landlord” when considering whether the legislative requirements had been met. In addition, if the tenant were right, it would follow that a former tenant would be unable to claim a penalty payment after a tenancy had ended because applications for penalty payments can be made only by “the tenant”.
The issues raised in this case will receive a further airing in Hashemi v Gladehurst Properties Ltd unreported 9 December 2009. It will be interesting to see whether the Court of Appeal agrees with the judge’s conclusions – and, if so, how the custodial and insurance-backed schemes will cope with late applications to protect tenancy deposits.
Allyson Colby is a property law consultant
