We are pleased to report that the High Court has handed down its decision in the case on Tenancy Deposit Protection that we have previously mentioned on this blog.
In Draycott v Hannells Lettings Ltd, PainSmith Solicitors have been acting for the Defendant lettings agency and have used Mr James Browne of Lamb Chambers as counsel. The facts of the case were undisputed and the essential issue is that Hannells registered the deposit with the custodial scheme operated by DPS more than 14 days after receipt.
The tenants claimed for the usual penalty of three times the value of the deposit and after decisions in their favour at lower courts the matter came before Mr Justice Tugendhat in the High Court.
There were three issues before the Court:
- Could an agent be held liable for a failure to protect a deposit or was it entirely a matter for the landlord;
- Was the requirement to register the deposit and give the required information within 14 days as required by section 213(6)(b) of the Act subject to the penalties set out in section 214; and
- Is it an actual or implied initial requirement of the DPS scheme that the deposit be registered within 14 days of receipt.
If point 1 was found in favour of Hannells they could not be liable under any circumstances but if they failed on this point then both points 2 and 3 would also have ot be found in their favour for them to escape liability.
On point 1 the Court decided that the wording of section 212(9)(a) was clear in stating that in the section of the Act relating to deposit protection:
references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies…
Accordingly, the Court found against Hannells on this point.
In relation to point 2 the Court looked at the wording of section 213(6) which reads:
(6) The information required by subsection (5) must be given to the tenant and any relevant person—
(a) in the prescribed form or in a form substantially to the same effect, and
(b) within the period of 14 days beginning with the date on which the deposit is received by the landlord.
and the wording of section 214(1)(a) which provides that an application can be made to the Court where a person believes:
(a) that the initial requirements of an authorised scheme (see section 213(4)) have not, or section 213(6)(a) has not, been complied with in relation to the deposit;
The Court noted that the Circuit Judge whose decision was being appealed had taken the view that to suggest that the 14 day requirement set out in s213(6)(b) did not attract the penalties set out is section 214 was to “drive a coach and horses” through the intent of the Act as it would permit a landlord to not protect a deposit until such time as they were challenged in Court. However, it also heard submission that this view was overly draconian as it penalised innocent error and that a failure to protect the deposit properly would always be penalised by section 215, which prevents the service of a section 21 notice while the deposit remains unprotected. Ultimately the latter position prevailed and the Court agreed that the Act itself does not impose a requirement that the deposit be protected within 14 days as long as it is protected prior to the matter coming before a Court.
The third point was more complex. Initially, none of the schemes had formally set out any initial requirements. In December 2008 the TDS scheme altered its rules to make clear that it had an initial requirement that any deposit registered with it be protected within 14 days of receipt. It was common ground that section 214(1)(a) allowed for a penalty to be imposed where an initial requirement had been breached. What was at issue was whether the DPS scheme imposed such a requirement. On looking at the DPS rules it could be seen that they had a clause stating that the deposit should be lodged with them within 14 days of receipt. However, there was no mention of this being an initial requirement. The Court took the view that a simple restatement of the Act did not amount to an expression of an initial requirement and that while it could be seen that an initial requirement of the DPS scheme was that a deposit be lodged with it it could not be taken that it was required that the deposit be lodged within 14 days. Therefore, this point was found in favour of Hannells.
Therefore, although it was found that Hannells were potentially liable for a failure to lodge a deposit it was found that their late lodging of that deposit with the DPS was not a breach of the Act or of the initial requirements of the DPS scheme and accordingly the appeal was allowed and the judgement against Hannells of the lower Court was set aside.
Therefore as things currently stand agents are liable for a failure to register the deposit, late registration does not automatically attract the penalties set out in section 214, and the DPS scheme has no initial requirement that the deposit be registered with it within 14 days of being received.
This is by no means the end of the matter though. This case is still capable of being taken to the Court of Appeal and there are at least two more cases which will see judgements handed down from that Court within the next few months and they could have the effect of altering the position again.
Although, there are other decisions from more senior Courts in the pipeline, this is the first binding decision on the issue of Tenancy Deposit Protection and, as such, is very important. We are pleased and proud to have been involved in this case.
A copy of he handed down judgement is available in Word format.