Tenancy Deposit Schemes, common sense prevails?

Author: Chris Alexander

Since the introduction of Tenancy Deposit Schemes in April 2007, many private landlord’s have been caught out by the punitive sanctions for non-compliance imposed upon them for non-compliance. The schemes had been designed to level the playing field between landlords and tenants in relation to end of tenancy deposit disputes, which had hitherto been view by some landlords as an end of tenancy windfall.

The legislation introducing the schemes was the Housing Act 2004 and in order to give the requirement to pay the deposit into a scheme some teeth, there were sanctions against the landlord for non-compliance. Firstly, the landlord was prohibited from recovering possession of the property as of right from the tenant under section 21 until such time as the deposit had been protected. Secondly, the landlord was liable to return the deposit to the tenant and thirdly the landlord was liable to pay a fine to the tenant equivalent to three times the value of the deposit. A trivial administrative oversight could easily end up costing most residential landlords several thousand pounds.

When advising landlord clients faced with these disputes, the universal response I experienced was that the punishment did not fit the crime.

Under section 214 of the Housing Act 2004, if the Court makes an order requiring the repayment of the deposit to the tenant or the payment of the deposit into an authorised scheme, the Court must also order the landlord to pay to the tenant a sum of money equal to three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order.

Until a recent Court of Appeal decision, the received wisdom had been that once proceedings had been issued by the tenant it was too late for the landlord to avoid the consequences of his or her failure to comply the requirements of the Housing Act. However, in Vision Enterprises Ltd (t/a Universal Estates) v Tiensia; Honeysuckle Properties v Fletcher [2010] EWCA Civ 1224, [2010] All ER (D) 115 (Nov); Draycott v Hannells Letting Ltd (t/a Hannells Letting Agents) [2010] EWHC 217 (QB), the Court of Appeal decided that the relevant time for assessing performance with the deposit obligations is the date of the hearing and not the date of issue of the proceedings.

Landlord’s across the Country will be breathing a sigh of relief as only the most foolhardy will now find themselves liable to pay the fine. By either paying the deposit into a scheme or returning it to the tenant prior to the hearing the landlord should escape the consequences set out in the legislation.

The dissenting judgment of Lord Justice Sedgley indicates that this may not be the end of the road for these claims. In practice, the financial sanction against the landlord has been diluted to the extent that it is virtually non-existent and this could not have been the intention of Parliament when the legislation was drafted. But it appears that the majority of the judges in the Court of Appeal felt that this disproportionate sanction was sufficiently unjustified for them to find a way round it for the benefit of landlords. Whether there is a tenant with deep enough pockets to attempt to take this issue to the Supreme Court remains to be seen.