Tenancy Deposit Schemes: A New Dawn?

Regular readers will know that I have blogged about Tenancy Deposit Schemes a number of times before, in particular regarding the series of cases that came before the senior courts over the last couple of years which blunted the sanctions brought in under sections 213, 214 and 215 of the Housing Act 2004.  Such was the effect of those decisions on the the statutory scheme that the government had to go back to the drawing board and amend the legislation under the Localism Act 2011.

How did we get here?  This is the first and perhaps most important question to ask.  From 6 April 2007 the government introduced legislation designed to redress the balance between private rented sector tenants and their landlords in relation to the handling of the deposit at the end of the tenancy.  Up until that time, there was a perception that landlords were able to exploit their stronger bargaining position caused by the fact that they often held the deposit and could easily make deductions.  This placed an unfair burden on the tenant to pursue legal proceedings for the return of the deposit, which invariably for commercial reasons they did not pursue.  

The provisions of the Housing Act 2004 required all landlords to pay tenants deposits into one of the 3 government authorised schemes within 14 days of receipt and for the landlord to give the tenant details of where the deposit was held.  The schemes had dispute resolution procedures which meant that at the end of the tenancy both the landlord and the tenant could submit their evidence to the scheme operator to resolve it.  While this was not a perfect system, in that landlords and tenants still struggled with the evidential  burden of proving their cases, it was a move towards levelling the playing field (at a cost).

However, once introduced the judiciary soon interfered with these plans when considering the true meaning of the drafting.  The landmark case was the Tiensia/Honeysuckle case, which established that the appropriate time for assessing compliance with the registration requirements was the date at which the court fixed the final hearing.  In practice this meant that a landlord could neglect to follow the statutory procedures, leave the tenant to issue court proceedings and then protect the deposit and still evade the statutory fine.  In my view this was an example of the judiciary showing a dislike to the mechanics of the legislation, which had the potential to lead to a flood of claims, and finding a way to defeat it.  Unfortuantely, so many landlords were (and some still are) unaware of their obligations that the courts felt that the punishment did not fit the crime.

The position of the tenant was further compounded in the Gladehurst v Hashemi case, where the court decided that once a tenancy had come to an end, it no longer had the power to punish the landlord.  In effect, it meant tenants had to bring their claims and have them heard before the end of the tenancy.  In practice, it was only at the end of the tenancy that many became aware of the landlord’s non-compliance and so the whole thing became a bit of a mess.

The amendments proposed by section 184 of the Localism Act 2011 were designed to remedy these issues and restore the cutting edge of the original legislative intent.  In summary the changes are:

  • The period for the landlord to comply with the initial requirements of the scheme and give prescribed information to the tenant has been increased from 14 to 30 days.
  • If the landlord fails to comply, the tenant can apply to court even if the tenancy has ended.
  • The penalty for failing to comply will be between one and three times the deposit rather than the fixed three times the deposit penalty that applied before.

However, while the amendments to the drafting cure many of the ills, there is one question that I think still remains.  Can a landlord protect itself from the punative fine by  registration of the deposit and service of information after the tenant has issued proceedings?  The reasoning which applied in the Tiensia case was that it could because:

1. that the present tense was used in s214 (2) (a) (and this tense is retained in the amended section); and

2. that the objective of the legislation was not to punish landlord but to encourage the protection of the deposits. 

Therefore, the legislation was not to be interpreted in a sense that implicitly encourages the ambushing of landlords by tenants who have grounds for believing that the landlords have not complied with their s 213 obligations. It was to be interpreted in a way that avoids litigation. 

Whether this view still prevails in light of the other amendments will no doubt require some further judicial scrutiny and therefore I expect that this is not the last we have heard of the TDS litigation.

About leaseholdlawyer

Solicitor
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