PainSmith Solicitors is currently instructed in a matter relating to Tenancy Deposit Protection which has significant implications for the entire industry. In this case the agent was instructed on a full management basis and held the deposit in a separate designated account. The landlord and agent subsequently failed to register the deposit within the 14 day timeline. Leaving aside the still, highly disputed, question of whether late registration is acceptable this case raises another, far more concerning issue. The tenant has issued proceedings against the agent and not the landlord and has stated that the agent is liable for the penalty of three times the deposit. To support their argument the tenant’s solicitor has put forward the wording of section 212(9)(a) of the Housing Act 2004 which states:
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
The tenant therefore submits that this definition includes the agent and therefore the penalties set out in s214, which are expressed as applicable to the landlord, are equally applicable to the landlord’s agent.
This poses a serious problem for agents. The DCLG has advised, and the view has generally been, where an agent acts for a let-only landlord, the liability is on that landlord to ensure that the deposit is properly protected and that if the landlord does not do so then the agent has no liability. This case has the potential to overturn that comfortable certainty of which will leave agents acting for clients on a let-only basis or a full management basis in a difficult position. It is likely that the only sure way for agents to resolve any potential claims will be to require landlords to leave their deposits with the agent for the agent to register under their own scheme membership. As this case demonstrates it is fundamental that the agent ensures the deposit and any initial requirements of the Tenancy Deposit Scheme are complied with within 14 days of receiving the deposit. In the meantime many agents will be faced with a large number of potential claims. It may be possible to seek insurance to cover this risk but this is not a good time to ask insurers to cover large potential risks of uncertain scope.
UPDATE: PainSmith has lost this case at first instance but application has been made to the High Court for permission to appeal.