At 0945 this morning, 11 November 2010, the Court of Appeal handed down its judgement in the two conjoined cases of Universal Estates v Tiensia and Honeysuckle Properties v Fletcher. The decision was a majority decision of Lord Justices Rimer and Thorpe, with Lord Justice Sedley dissenting.

Facts
The facts in the two cases were as follows. In Universal Estates the tenant was taken to Court for possession for arrears of rent. The possession claim was adjourned after she indicated her intention to counterclaim, although that counterclaim was not for an unprotected deposit. The deposit was then registered with MyDeposits but it was, of course, late, more than 14 days from the date of receipt. The High Court has held, in the case of Draycott v Hannells Lettings, that registration more than 14 days after receipt of the deposit cannot be penalised. However a breach of the initial requirements of the relevant deposit scheme can incur the penalties and it was argued in Universal Estates that the MyDeposits scheme had such an initial requirement. In Honeysuckle a claim for possession for rent arrears was also commenced. The tenant’s counterclaimed on the basis that the deposit was not registered. The deposit was protected before the hearing of the matter by the Court, again with MyDeposits.

Therefore the issues before the Court of Appeal were whether it was permissible to protect the deposit more than 14 days after its receipt and at what date there should be a consideration of the protection status of the deposit, at the date of issue of proceedings or at the date of the Court considering the situation at a hearing.

Decision
In short, the Court considered that the High Court had decided correctly in Draycott v Hannells and that late protection is acceptable. Where the Court of Appeal has gone further is that it has ruled that provided protection has been done, and the correct information provided, before the Court comes to consider the matter at a hearing then that is acceptable, even after proceedings have been issued for non-protection. Therefore the landlord’s deadline for compliance is the Court hearing itself and not the date by which proceedings have been issued. The Court did hold that if a tenant is compelled to issue proceedings to force the protection of a deposit then they are probably entitled to their legal costs in so doing. It should be noted here that the Court emphasised the importance of pre-action conduct and discouraged any attempt to ‘ambush’ landlords by issuing proceedings for an unprotected deposit without writing to them first.

The Court further held that no scheme can impose an initial requirement that a deposit must be protected within 14 days, a failure to adhere to which will allow a tenant to claim against the landlord. Therefore the current imposition by The Dispute Service scheme of a requirement to register within 14 days is no more than an administrative requirement for that scheme and registrations with that scheme made after 14 days are not invalid for the purposes of tenancy deposit protection legislation although the scheme may consider them violations of its rules and may therefore adjudicate on the deposit in a manner that is against the landlord’s interests.

The Court made no comment on what the correct position should be if the deposit is not protected until after the tenancy has ended. This remains a live issue and one which must be considered.

All three judges commented that the interpretation which they have been forced into is totally unsatisfactory and they found it hard to believe that this is what Parliament intended when it made the legislation. The consensus certainly appeared to be that the legislation is now toothless and largely without value. The onus now seems to be on Parliament to consider reform of the legislation as a matter of urgency to restore a proper balance.

Full text of decision.