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More TDP Problems

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.

13 Comments

  • Mark Havers 18th March 2009 at 4:27 pm

    We at Cathedral Lettings were always worried about this possibility so have always done the following. We lodge the deposit with the DPS in our own name and that of the tenant. When the let-only landlord advises us of his DPS reference number, then we simply transfer it from our DPS account to his. The DPS is set up to handle this and it works well for us.

  • PainSmith 18th March 2009 at 4:34 pm

    Good idea. A lot of agents have similar systems. We would tend to favour forcing clients to simply use the agent to hold the deposit but many landlords dislike this, with some justification. However, if agents are to be fixed with a liability systems like this are regrettably inevitable. Unfortunately the government appears very reluctant to make any efforts to resolve the outstanding problems with the TDP system.

  • Nearly Legal 19th March 2009 at 12:26 am

    Interesting and thank you for putting this up. I had heard mutters about potential claims against agents on this basis for a while and presumed it was just a matter of time till it was tried. I’d be very grateful if you would post the outcome, at least on this point. I’ll be putting up a post linking to yours, as this is an important issue for many.

  • M Dooley 20th March 2009 at 1:59 pm

    I think it unlikely that the agent can be considered to be acting on behalf of the landlord at the time of the dispute if the the agent was let only and the deposit dispute arose at the end of the tenancy.

    The other issue raised whereby the agent arranges for the deposit to be held in accordance with the scheme even though he/she does not manage the property is , I suspect , fraught with difficulty and not to be recommended. No doubt in the event of dispute the scheme administrators will regard the agent as a party to it although the agent will have no direct knowledge of the issues ( often arguments over perceived disrepair at the end of the tenancy ), he/she will be caught in the middle , do a great deal of work for no benefit and potentially alienate the landlord if an adverse decision is given.

  • Alison Rycroft 20th March 2009 at 4:16 pm

    We always ask the Landlord to sign a letter stating “I/we confirm that I/we will arrange for the deposit to be protected by a Government approved Tenancy Deposit Scheme as required by the Housing Act 2004, if applicable.” Do you think this is sufficient?

  • PainSmith 20th March 2009 at 4:35 pm

    Not really. At the very least you will want the landlord to indemnify you against any action taken against you if he registers it improperly or fails to serve the prescribed information. It won’t stop the tenant coming after you though. The only thing that can do that is a suitable ruling on the scope of s212(9).

  • Trevor Hulme 30th March 2009 at 9:43 pm

    We do the same as Mark Havers. My interpretation of the law is that the person taking the deposit is the one responsible for protecting it. I do not know what the two insurance based schemes do in cases of single claims, but if you need to complete a Statutory Declaration as in the case of DPS, how can you truthfully complete it if you have not managed the property.

  • Jason Silverman 31st March 2009 at 8:56 am

    On a related but different point if you have tenancy renewal where the rent is increased are you potentially in breach if you do not re-send the Prescribed Information?

    TDS Guidance leaflet D states as follows:

    7. Do we have to serve the Prescribed Information afresh when we renew a tenancy?

    7.1 CLG (Government Department of Communities and Local Government)advise that you should re-issue the prescribed information with each renewal, to be on the safe side. However you may take the more pragmatic view that you only need to do that if any of the elements have changed. You will need to be confident that your systems will ensure you will capture all the relevant changes that have taken place

  • PainSmith 1st April 2009 at 10:51 am

    The Prescribed Information does not require that the tenant be told the rent figure so it should be irrelevant.

  • M Dooley 5th August 2009 at 10:22 am

    Hi Pain Smith. Was this issue ever resolved and if so in whose favour?

  • PainSmith 5th August 2009 at 11:24 am

    @M Dooley At first instance the tenant has succeeded. However, we are heading for appeal on the agency point and on the 14 day issue so watch this space!

  • Anon 29th August 2009 at 5:37 pm

    Hello, is there any update on the status of the appeal yet? Successful or otherwise? I’d be grateful if you could also let us know which court the case was heard at and who the claimant and defendant were. Many thanks.

  • Property Staffordshire 29th April 2010 at 9:48 am

    Thank you for Sharing your experience… may I know what happened later…

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