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Tenancy Deposits – Recent Cases

Under the Housing Act 2004 a landlord who takes a deposit for an assured shorthold tenancy from their tenant must protect the deposit by placing it in an authorised tenancy deposit scheme within 14 days of receipt. The landlord must also give the tenant certain required information about the deposit scheme within the same timescale. If they fail to do so, the tenant can apply to the county court for orders (1) compelling the landlord to repay the deposit to the tenant or to place it in a deposit scheme and (2) requiring the landlord to pay to the tenant a sum of money equal to three times the amount of the deposit. The Act also provides that the landlord may not give a valid section 21 notice to terminate a tenancy for as long as he is in default under these provisions.

The question as to the circumstances in which a landlord should be ordered to pay three times the deposit to the tenant has recently been considered by the Court of Appeal in two recent cases heard together, Tiensia v Vision Enterprises Limited (t/a Universal Estates) and Honeysuckle Properties v Fletcher, McGrory and Whitworth. The facts in both cases were similar and concerned late compliance by the landlord under existing tenancies.

By majority decision the court held that if the landlord fails to place the deposit within a deposit scheme within the required 14-day period there will only be a penalty if there is a complete failure to protect the deposit at any stage up to the hearing of a claim brought by a tenant for the remedy under the Act. The landlord’s deadline for compliance is the Court hearing itself and not, for example, the date by which the claim is issued at court.

The decision has been criticised on the basis that it renders the Act ‘toothless’ – the landlord can cure his default following issue of the tenant’s claim, in which case the claim will be dismissed. The landlord may however be liable to the tenant for costs in connection with the claim, where the default has been remedied after the claim has been issued. When considering issuing a claim a tenant should always send a letter before action to the landlord setting out their proposed claim. This will help to ensure a measure of protection on costs and, should the landlord fail to remedy the default before issue of the claim but subsequently remedy it following issue, will place the tenant in a far better position to argue that the landlord should bear liability for costs in the circumstances.

The decision left unclear the position where the tenancy has already ended i.e. whether the landlord can protect the deposit after the end of the tenancy and still escape liability. A recent case in the Tameside county court Shepley v Majid Yassen held that the decision in Tiensia only applies where the deposit has been protected before the end of the tenancy. This decision appears to be logically correct, but is nevertheless understood to be going to appeal…

Ross Burkitt | Litigation Dept.