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A course providing information about tenancy deposit scheme legislation which can be used towards continuous professional development for the London Landlords Accreditation Scheme or any other scheme which accepts this CPD.

These lessons are intended as a layman’s description of the essence of what the legal requirements relating to tenancy deposits are. They should always be used in conjunction with the full text of the Act and subsequent legal interpretations of it. These interpretations may also change after these notes have been produced. You should always seek legal help if you are uncertain on any point.

Material contained in this publication is the copyright of Training For Professionals and may not be copied, stored or reproduced in any way without the written permission of TFP.

The whole area of deposit protection is deeply steeped in the law. The Housing Act 2004 brought in deposit protection and further legislation amended and clarified it. Although deposit protection was designed to reduce court cases over deposit disputes, there have been more cases in a court of record (High Court and Court of Appeal) on the deposit protection legislation in the last 6 years than there were actual deposit court cases. These cases have shaped understanding, triggered amending legislation and shocked not a few landlords and agents.

As part of the whole review of deposits and deposit protection we start by going right back and asking the question of “Historically, why did we even take a deposit at all?” We suggest the following three reasons:

The trouble with the legislation is that the first two of these reasons are now lost. Landlords can only retain the tenant’s deposit with the tenant’s agreement or with the approval of the adjudicator. Control is wrested from the landlord (even in an insured scheme) and unless the tenant agrees. There is no immediate access to funds.

This might beg the question of should deposits be dropped altogether? The trouble with this is that landlords would have to rely on the integrity of the tenant to return the property in good condition with no financial motivation in place to encourage them to do so.

The whole of the deposit protection legislation was started by a Citizens Advice Bureau report called “Unsafe Deposits”. In this report they stated that 48% of deposits were unfairly withheld by landlords. This was a bold, attention-grabbing headline, but was it true? A quick look at the methodology of the survey shows that the figures may be mathematically true, but do they really show a true picture of the market?

The figures came from a survey run across all CAB office for a one week period. They questioned everyone who came in (regardless of the reason for calling), if, in their opinion, they had had a deposit unfairly withheld in the last five years. 48% reported such a problem.

However, the question is, was this actually representative of the real market? After all, current schemes are all running at a dispute rate of less than 2%. There were three fundamental flaws in the research that have distorted the results. Firstly, if you ask a group of people who go to see CAB about a problem - “have you had a problem?”, there has to be a statistically higher percentage who say yes. This is simply because those who had a deposit unfairly withheld might have gone to the CAB for advice but those who had their deposit refunded without problems would not go in for the that issue. The second point is that there was no external verification to check if the tenant’s view was credible. Having seen cases taken to court for a deposit refund where they had not paid the last month’s rent, the tenant’s view does not always stand up to scrutiny. Thirdly, they asked about tenancies in the last five years. At the more extreme end of the scale a tenant might have had ten six month tenancies in the five year time frame. They could have had their deposit refunded perfectly in nine out of ten cases and so their own experience is 90% good and 10% bad yet they are counted as having had a problem.

The main pieces of legislation that underpin deposit legislation are:

We will examine the effect of these because getting deposit legislation right starts with a good understanding of what the law actually says.

The legislation has had several changes since 6 April 2007 when it was first introduced, often shaped by court decisions.

Initially, a deposit was to be protected (the correct term is to “comply with the initial requirements of a scheme”) within 14 days. A penalty of 3 times deposit was payable with no discretion as to the amount for failure. However, the 14 day period was simply a period of immunity for the landlord from a penalty claim. In reality as long as the deposit was protected before a hearing, the legislation was satisfied and a claim for a penalty would be unsuccessful.

For fear this would result in landlords and agents failing to protect deposits until the day before any hearings, the Localism Act 2011 changed things from 6 April 2012. This Act changed the 14 days to 30 days but that time limit is now a “cliff edge”. Once missed, there is no going back and even if protected late, the penalty would still be payable. The Localism Act also changed the penalty to between 1 and 3 times deposit at the discretion of the court (plus return of the deposit as has been the case from the beginning).

The Localism Act also made changes to ensure that any former tenant can claim the deposit penalty effectively giving them up to 6 years to make a claim.

Finally, the Deregulation Act 2015 made changes from 26 March 2015 after the important Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 case. Superstrike said that if a deposit was received prior to 6 April 2007 but went statutory periodic on or after that date, the deposit should have been protected (despite the deposit being received prior to deposit legislation being introduced). The case also suggested that prescribed information which must also be given within 30 days should be given not only when the deposit was received but also when the tenancy went statutory periodic at the end of the fixed term. Of course this could cause severe problems to almost every landlord and agent in England or Wales.

The Deregulation Act therefore made changes to the deposit legislation and introduced:

As currently drafted (including the amendments made by the Localism Act 2011 and Deregulation Act 2015), the main deposit protection rules are to be found in sections 212 - 215C and Schedule 10 of the Housing Act 2004. In brief the following summarises the content of each section:

212 – Structure of the schemes

213 – Requirements of deposit protection

214 – Proceedings for non compliance

215 – Penalty for non compliance

215A - Statutory periodic tenancies where deposit received prior to 6 April 2007

215B - Prescribed information relating to deposits

215C - Transitional provisions for 215A and 215B

Schedule 10 – Scheme requirements

This section is not a major one for landlords or agents as it largely specifies who the national authority is (separate for England and Wales), and outlines the schemes in broad detail. The important part for agents lies in the definitions section, and you ignore this at your peril.

Section 212(8)

Money

“means money in the form of cash or otherwise”.

This definition was part of the Superstrike case as the words “or otherwise” were argued to mean that it did not have to be a physical transfer of cash. Clearly credit card payments, cheques etc are covered. However, following the Superstrike case, the transfer of a deposit from a previous tenancy would fall within the definition of a receipt of “money”. It might be said you have received it for a different purpose and this is still receipt of the “money”.

Tenancy deposit

“means any money intended to be held (by the landlord or otherwise) as security for - the performance of any obligations of the tenant, or the discharge of any liability of his, arising under or in connection with the tenancy.”

This statement defines what a deposit is. It talks about any “money” but the previous definition means that the word money has to be read widely. Note also the later exclusions for non-monetary deposits (e.g. holding the tenant’s Rolex watch!)

So a deposit is money in any form, paid by anyone. It includes deposits paid in instalments or a lump sum. Not “property” of any other sort (e.g. Rolex) which is prohibited by 213(7) and (8). It does not cover bonds or letters of guarantee, where no actual money changes hands. It does not cover insurance policies.

The whole drift of this section is about the purpose of why the money is taken. Note the hugely wide wording about “in connection with” the tenancy. In other words if the money is taken without there even being a tenancy yet, the money could still be caught by the legislation. Any agreement to take a deposit to hold a property whilst references are checked should be carefully worded because otherwise such a holding deposit could be seen as money held in connection with a tenancy even where there is no tenancy yet.

Further consideration and care should be given to receiving multiple rents in advance. If a tenancy agreement requires one month’s rent to be paid but the landlord or agent receives six months’ rent in advance, it is highly probable that five of those months’ rent will be “money held” … “in connection with a tenancy” and therefore regarded as a deposit. This problem is easily fixed by ensuring the tenancy agreement is correctly worded - see for example [Johnson & Ors v Old [2013] EWCA Civ 415](http://www.landlordsguild.com/six-months-rent-in-advance-tenancy-deposits-and-section-21-notices/).

Sec 212(9)

“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,”

This sub para is very important as it clarifies that where ever the legislation uses the word landlord this will include anyone working on the landlord’s behalf. Therefore anything that affects the landlord can affect the agent too.

Section 213 defines the basic requirements of deposit protection. For compliance, it is probably the most important section of the legislation as this tells us what we have to do.

Section 213(1)

This sub-section includes an interesting statement as it says that we are required to comply with the deposit protection legislation “as from the time when it is received”. Although the deposit doesn’t need protecting for 30 days (see shortly), it must be “dealt with in accordance with an authorised scheme” immediately from receipt.

This sub section also clarifies the requirement only relates to assured 'shorthold' tenancies. Therefore a deposit received in connection with a lodger or contractual tenancy where the tenant is a company for example, the deposit would not need protecting.

Section 213(2)

This simply says that you cannot have an agreement with the tenant that says the deposit does not need to be protected. Some legislation, for example Right of Third Parties legislation, specifically allows for “contracting” out of it. If the law is silent on the point it would normally be presumed you cannot contract out. In this case they go further and clarify that you are not allowed to contract out. Therefore any wording in a tenancy agreement seeking to place the obligation on the tenant, to say the deposit does not need to be protected, to seek to avoid the legislation by clever wording etc, will all fail this test. This point is even repeated in section 213(9).

Section 213(3)

Although we talk about the need to “protect the deposit within 30 days” the law does not use this phrase and it talks about complying with the initial requirements of a scheme. The power to decide how a deposit is protected is therefore granted to the individual schemes. There is a given period of 30 days beginning with the date on which the deposit is received, in which this has to be done. Note the 30 days begins from the date of receipt of the money and not the date the tenancy commences. This would particularly affect a tenancy which has been agreed but is not to take effect until several weeks or months in the future. If a deposit has been received in connection with that tenancy, the deposit will nonetheless need protecting within 30 days of receipt.

Section 213(4)

Simply clarifies that the initial requirements are those specified by the scheme.

Section 213(5)

This section is important. It is basically talking about the prescribed information and lists the information that must be given to the tenant relating to:

The section finishes with the words “as may be prescribed”, in other words the details of what has to be given are in separate regulations (see later).

Section 213(6)

This section continues with the prescribed information and requires the information to be given “within the period of 30 days beginning with the date on which the deposit is received by the landlord.”

Section 213(7)-(9)

Prohibits holding non money deposits, it defines deposits (again) but specifically in relation to the holding of property. Again, there is a prohibition on contracting out.

Section 213(10)

This sub-section contains further definitions and the one we are most interested in is the “Relevant Person”. It “means any person who, in accordance with arrangements made with the tenant, paid the deposit on behalf of the tenant”.

This section deals with how the courts treat complaints about non-compliance with the legislation.

Section 214(1)

This allows the tenant or the relevant person to seek a penalty for a failure to comply with the deposit rules but only where the deposit has been paid on or after 6 April 2007. The reference to “paid” also includes a deposit which was received prior to 6 April 2007 AND the tenancy went statutory periodic on or after that date. In the Superstrike case (later legislated by the Deregulation Act 2015), it was held that such a deposit is effectively paid back to the tenant under the old fixed term tenancy and then re-taken for the new statutory periodic tenancy. All this happened even though no physical money changed hands. This principle applies exactly the same if a renewal is done on or after 6 April 2007 - a deposit will be regarded as having been “paid” on the date of the renewal tenancy.

However, where a deposit was received before 6 April 2007 AND went periodic before that date, this sub-section is now clear no penalty can be claimed (but see later for section 21 notices and these deposits).

A tenant or relevant person can make a claim on the basis of two points:

This second point means that even if the deposit was protected and prescribed information given correctly but the deposit is no longer being correctly held (for example an agent fails to renew their membership with a scheme), the tenant can still go to court and claim a penalty.

Section 214(1A)

This sub-section inserted by the Localism Act 2011 confirms that a former tenant is regarded as a “tenant” for the purposes of making a claim. This has the effect that a tenant (or former tenant) has six years to make a claim for the penalty provisions.

Section 214(2) & (2A)

Sub-section 214(2) explains the court rules where the tenancy is current at the point of making an application for a penalty to the court and sub-section 214(2A) provides the rules for after the tenancy has ended (at the time of making the application).

Section 214(3)

This section only applies where the application is made during the tenancy and the court MUST order the deposit to be refunded to the tenant or paid into the custodial scheme. The order would be against the person who appears to the court to be holding the deposit (but notice the different wording for the penalty later).

Section 214(3A)

This section, inserted by the Localism Act 2011 says the court MAY order the person who appears to the court to be holding the deposit to repay all or part of it to the applicant. Note there is no compulsion and this clearly allows for the situation where the judge decides the tenant is not entitled to a refund (perhaps because the deposit may have been repaid previously when the tenancy ended).

Section 214(4)

This sub-section explains that whether or not the tenancy is current and whether or not in the above paragraph the judge orders any refund, the judge must award a penalty to the tenant of between one and three times the value of the deposit. It matters not how innocent or unfortunate the landlord was: break the rules and even a sympathetic judge must award a penalty. There is essentially no way of avoiding this and this is the cliff edge that is so dangerous in this situation.

Cases going through seem to take a sensible approach so far and an order of 1 or 1.5 times deposit is being ordered for genuine mistakes that were rectified as soon as found and three times for serious flouting of the law with no intention to comply.

It is interesting to note that the penalty will be ordered to be paid by the “landlord”. As the definition of landlord includes agent it is possible (where there is an agent) that either landlord or agent will have to pay the penalty. This is different wording to the return of the deposit outlined above which is “the person who appears to be holding the deposit” although commonly it will end up being the same person.

Sections 214(5) and (6)

These two sections simply explain that if a non-monetary deposit has been taken contrary to the legislation (e.g. Rolex watch) then it is recoverable from the landlord.

Section 215 deals with the non-financial sanctions or penalties for failure to comply with deposit protection.

Section 215(1)

This sub-section says no “section 21 notice” may be given in relation to the tenancy at a time when the deposit is not being held in accordance with an authorised scheme. This sub-section was changed by the Deregulation Act 2015 and now says that even a deposit received prior to 6 April 2007 must be protected before a section 21 can be served (or deposit returned, see later). This sub-section also has the effect that regardless of when the deposit was received, if there is some breach of a scheme rule (e.g. there is a failure to pay a renewal membership fee) the deposit will not be held “in accordance with an approved scheme” and as such no section 21 notice may be served until the breach is rectified (or the deposit is returned, see later).

Section 215(1A)

This sub-section provides that where a deposit was received on or after 6 April 2007, no section 21 notice may be given in relation to a tenancy at a time when section 213(3) has not been complied with. Section 213(3) refers to the initial requirements of a scheme being complied with within 30 days. The effect is that if a deposit is received and not protected within 30 days, a section 21 notice can never be served in relation to that tenancy unless the deposit is first returned (see later). This is the case even if the deposit is protected late, for example on day 45. This is because sub-section 215(1A) which was amended and inserted by the Deregulation Act 2015 refers specifically to the time given to protect the deposit.

Section 215(2)

This sub-section links the loss of the section 21 notice to the failure to give prescribed information. If section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with. As the penalty applies to section 213(6) this includes the 30 days provision but the statement includes a get out by allowing for the section 21 notice to be served when section 213(6)(a) has been complied with. 213(6)(a) is the requirement to give the prescribed information and they have intentionally excluded the 30 days period which is in section 213(6)(b). The effect is that if a deposit was protected within 30 days but the prescribed information was not given, it is possible to give the prescribed information late and then afterwards give a section 21 notice. The financial penalty for failing to give the prescribed information within 30 days would still be payable if applied for. Prescribed information is not required to be given if the deposit is returned first then the section 21 given (see next).

Avoid giving prescribed information and a section 21 notice on the same day to avoid the question as to whether the section 21 was served after the prescribed information given. Note the initial requirement and the prescribed information MUST be complied with after the deposit is received.

Section 215(2A)

Above we mention that where a deposit has been protected late, not being held with a scheme or prescribed information not given, a section 21 notice can nonetheless be given if the deposit has been returned. This sub-section 215(2A) details this.

This new section inserted by the Localism Act 2011 says that the above prohibitions on serving a section 21 do not apply if:

Therefore there is a way out of failure to protect in 30 days; refund the deposit in full. Or, agree in writing with the tenant to deduct the deposit from rent arrears for example. When refunding it is sensible to pay by bank transfer to avoid any questions that could arise if a cheque were sent that wasn’t then cashed (although it is likely that an un-cashed cheque will be sufficient but no court of record has decided this at the time of writing).

There are two ways out of the failure to give prescribed information within 30 days: refund the deposit in full or give the correct prescribed information before serving the section 21.

Section 215(3)

This section applies the section 21 penalty in any situation where a non-monetary deposit is being held. The solution is to return the non-monetary deposit.

Section 215(4) and (5)

These sections simply provide clarification of definitions. They cross-reference 213(8) and the Housing Act 1988.

The Deregulation Act 2015 inserted a new section 215A into the Housing Act 2004 to deal with deposits which were received before 6 April 2007 AND the tenancy went statutory periodic on or after 6 April 2007.

As a result of the Superstrike case it was held that the duty to protect these deposits was triggered by the new statutory periodic tenancy which arose.

The Deregulation Act 2015 enshrined Superstrike into law but gave a period of amnesty for landlords and agents who may have been caught out by the case.

Where all or some of the deposit was still being held (unprotected) by a landlord or agent AND the statutory periodic tenancy was still in force on 26 March 2015, the landlord or agent had 90 days to protect the deposit and issue prescribed information starting from 26 March 2015. If that was done, no penalty is payable and any section 21 notice served will be valid.

If the statutory periodic tenancy had ended before 26 March 2015 or, the whole deposit was no longer being held before that date, it is deemed that the landlord did comply with deposit protection within appropriate time-scales and as a result no further claims for the penalty can be made in respect of this type of deposit.

The provision is treated as if it were in effect from 6 April 2007 except if a section 214 claim for the penalty or a section 21 notice possession claim has been fully determined before 26 March 2015.

The Deregulation Act 2015 also inserted this new section 215B which deals with the other problem that arose from Superstrike namely, re-protection / issuing prescribed information when a tenancy goes statutory periodic.

Where a deposit has been received on or after 6 April 2007 (including a deposit received before that date but is deemed received after that date due to a periodic or renewal tenancy) and all of the following also applies-

Then, any requirements to re-protect the deposit or re-serve prescribed information in relation to the new replacement tenancy are treated as if they had been complied with by the landlord or agent.

The end result is that no further action is required after the initial protection and prescribed information being given. This not only includes in relation to a statutory periodic tenancy but also to a written renewal (where it’s between the same landlord, tenant and property).

It is important to note that there must have been some protection originally and the correct prescribed information given for this to apply. If there was a failure to give correct prescribed information originally, there will also be a failure for each renewal or statutory periodic tenancy.

Just as prior to these changes, where a deposit has not been protected within 30 days, there is little point in protecting because the penalty would nonetheless be payable and no section 21 could be served. The best advice where a deposit has not been protected in time is to simply repay the deposit in full or agree deductions. The quicker this is done, might assist with ensuring as low a penalty as possible.

The changes are treated as if they were in effect from 6 April 2007.

This section also inserted by the Deregulation Act provides transitional provisions for the above sections 215A and 215B. These transitional provisions have been explained within each description above.

Schedule 10 is really about how the schemes run, as opposed to how the landlord or agent should operate.

The schedule also includes the procedure for moving a protected deposit from one insured scheme to another scheme during a tenancy.

The second important piece of legislation to understand thoroughly is The Housing (Tenancy Deposits) (Prescribed Information) Order 2007. This was brought into force at the same time as the deposit protection part of the Housing Act 2004, 6 April 2007.

The following information is required to be given under the order:

So far, every major case that has gone to the court of record where the inadequacy of the prescribed information was under question has decided that if you don’t give it all, you have failed to comply. It is not uncommon to have situations in the law where a failure to do something is considered not serious enough to make it an issue. So far this argument has failed, even though tenants know the information or it has been freely available for them to look up. This is a very serious warning to make sure every single thing in the prescribed information is included.

One of the most common missed parts of the prescribed information by landlords or agents is -

the name, address, telephone number, and any e-mail address or fax number of the tenant, including such details that should be used by the landlord or scheme administrator for the purpose of contacting the tenant at the end of the tenancy;

Notice how the prescribed information must contain information to be used for contacting the tenant at the end of the tenancy. All prescribed information should have some address, telephone and email which can be used at the end of the tenancy. Clearly at the time of completing an application form for a tenancy, the tenant will not know where they are going to be living at the end of that tenancy! However, any address can be inserted here. For example, it might be a parent or other relatives address, work or a friend. Crucially, it must not be left empty and something must be inserted to ensure compliance with the prescribed information order.

The easiest way to get all the information required for the prescribed information is to have a suitable application for accommodation. That form can ask the tenant all the correct questions from the outset (name, telephone, email, fax etc.) and the information can be simply and quickly transposed into the prescribed information.

For example, your application for accommodation might ask for a next of kin name and address. A simple tick box could ask “can this address be used at the end of the tenancy?” If they tick yes then that next of kin address can be interested as the post tenancy address (if no is ticked, a separate box asking for a post tenancy address can be used).

The landlord must sign the prescribed information and the tenant must be given the opportunity to sign (see later for more detail).

It is possible to send the prescribed information electronically as long as the tenant agrees to this which is confirmed by the Explanatory Memorandum at 7.7 (which isn’t binding authority):

“… The information passing between landlords and tenants and the schemes will be able to be completed electronically or manually”.

And is further confirmed by the Regulatory Impact Assessment:

23 … the prescribed information, which will be kept as simple as possible, and will be able to be completed electronically or manually.

In order to use emailed prescribed information the landlord or agent must be able to sign the prescribed information.

Case law and legislation is increasingly recognising this method of delivery and there are several different methods that may qualify. The simplest and therefore most attractive is to type in your name. This would show a clear indication to “sign” and is accepted as a signature. This would not include any situation where the signature was “automated” (e.g. the standard signature added by most email programmes).

The following cases all look at this issue and form the basis of the advice, Green v Ireland [2011] EWHC 1305 Ch, J Pereira Fernandez SA v Mehta [2006] EWHC 813 Ch.

The landlord is required to give the tenant opportunity to sign to confirm the prescribed information is true. Again this can be electronic provided the tenant purposefully types their name as above. Note there is no legal requirement for the tenant to sign, just that they are given an opportunity to do so. Therefore your email to the tenant will ask them to type in their name to confirm acceptance (as long as they have agreed to accept an email in the first place).

Where there is a relevant person (a person who paid the deposit on behalf of the tenant - e.g. parent), a copy of the prescribed information must also be given to them. The relevant person must also be given an opportunity to sign and their information (name, address etc.) must also be in the prescribed information.

Another part of the prescribed information is the “information contained” in a leaflet produced by the scheme for the tenant. It is not a legal requirement to provide the actual brochure, provided the content is included. This would allow re-laying it to reduce the number of pages and printing it in black and white. Whilst general awareness of this point has risen, there are still significant pockets of non-compliance. Over the years, schemes have produced better more compact leaflets so it’s probably easiest now to just include the leaflet as produced by the scheme of choice.

The Deregulation Act 2015 made a small amendment to the prescribed information order and clarified that where the details of the “landlord” are asked for, either the landlord or agent details can be inserted in that part.

The simplest way is to match the name and address shown on the tenancy agreement when inserting details into the prescribed information so everything is uniform.

There have now been a reasonable number of cases through the courts to give some interpretation on the legislation. Some of the older cases have had part of the judgement overturned or changed by legislation but we will focus on the elements of the judgements that have survived.

The first case is Draycott & Anor v Hannells Letting Limited T/A Hannells Lettings [2010] EWHC 217 (QB) 11 and it was in the High Court on 12 February 2010. Note that as a High Court judgement it is binding on every county court in the same circumstances.

The critical outcome of this case that remains is the issue that the tenant is perfectly entitled to sue the letting agent as the definition of “landlord” includes the agent (as defined in section 212(9)).

It was further held that where the deposit was received by an agent and the agent failed to protect the deposit, it is the agent who should pay the penalty. The deposit is to be repaid (if ordered) by the person who appears to be holding the deposit which in this case was the landlord as the agent had given the deposit to landlord. The judgement stated:

In my view the words in s.214(3)(a) “the person who appears to the court to be holding the deposit” are not otiose. Rather, those words limit the scope of any possible order under s.214(3)(a) to the person holding the deposit, and prevent such an order being made against any other person who would come within the statutory definition of the landlord – for example a letting agent who, at the time of the making of the court order, was not holding the deposit.

 

No such limitation would be appropriate in s.214(4). Unlike s. 214(3), which is an order for restitution made against the holder of the deposit, s.214(4) is penal, as Mr Browne points out. There is no reason why the penalty should be imposed on the person who, at the time the court order is made, happens to be holding the deposit. The penalty should be imposed on a person who is responsible for the failure to comply with s.213. In the present case that is the Defendant, and not the actual landlord … (paras 38 & 39)

Suurpere v Nice [2011] EWHC 2003 (QB) 13 was from July 2011 and the important point of this case was the difference between giving the prescribed information and telling the tenant where the prescribed information can be found. Here the landlord (through naivety and ignorance rather than malice) failed to comply with the deposit protection legislation. They did protect the deposit, albeit it late (which was allowed at the time but no longer), but failed to give the tenant the prescribed information. They relied on the information provided by the custodial scheme and the fact the tenant could look up information about the scheme on the website. The court held this was not good enough to comply with the legislation. The legislation requires the landlord to sign the prescribed information (not done if given by the scheme or online) and it requires the landlord to “give”, not for the tenant to be told where they can obtain, the prescribed information.

The court held that the giving of the prescribed information was as important as protecting the deposit. This is a stark and salutary warning.

This next case is very similar to the Suurpere v Nice case. Ayannuga v Swindells [2012] EWCA Civ 1789. 14

The landlord received a deposit and paid it into the custodial scheme. The key issue was if adequate prescribed information had been given. A lot of the prescribed information is in the tenancy agreement anyway. Further information had been provided in a letter and at the trial, the judge adjourned for lunch and told that landlord that provided they gave the remaining information before he passed judgement that would be compliant with the pre Localism Act 2011 rules. Despite this gift horse of an opportunity the landlord still failed to give 100% of the prescribed information and there were four sub paragraphs still missing.

At this first hearing, the judge awarded possession as he felt compliance had been achieved but the tenant appealed on the basis that whilst some information had been given, not all had been given. The argument was that paras (2)(1)(c), (2)(1)(d) had not been given and for paras (2)(1)(e), (2)(1)(f) it was disputed whether or not they had been given. Notice the forensic checks of the regulations line by line arguing over what has or has not been given. The landlord argued that if anything was missing it was “merely procedural” and easily obtainable by the tenant and therefore the tenant suffered no loss. The Court of Appeal disagreed and found for the tenant.

As this case involved “prescribed” information other cases about prescribed information or forms have a bearing. In deposit protection terms they have never prescribed a form, only the information to be given. Ravenseft Properties Ltd v Hall held that a form does not have to be exactly the same, only substantially to the same effect. (this was dealing with the prescribed form of the section 20 Housing Act 1988 notice). In Kahlon v Isherwood it was held that the fact the tenant knew a piece of information does not remove the need for that information to be included. Clearly tenants will know who funded the deposit and an address to be used post tenancy, but this will not be any excuse for not including it in the information supplied.

Johnson and others v Old [2013] EWCA Civ 415 15 deals with a situation we have been warning about for some years. This is the situation where a tenant, through inadequate referencing, pays 6 months’ rent up front and whether some or all of the rent in advance could be regarded as a deposit.

The problem in this case came from poor editing of the tenancy. This resulted in the tenancy talking about both a monthly and a 6 monthly rent, leaving it open to challenge. Had the amendment been more clear (i.e. only talking about the rent for 6 months and not mentioning the monthly rent), there is every likelihood it would never have gone to court saving the landlord and agent a lot of time and effort. There has to be an important lesson here in that editing agreements is an important part of the role and care should be taken to achieve the desired results without creating risks.

The relevant clauses about rent were as follows:

1.7.1 The Rent shall be £1,000 per calendar month, payable in advance.

1.7.3 The first payment of £1,000 being due on First of May 2010 or prior to the date of taking possession.

1.7.8 The first six months’ rent are to be paid in advance (£5,700) (sic)….

1.7.9 The tenant can be re-referenced at the end of the six month term. If the tenant can be satisfactorily referenced, then clause 1.7.8 will not apply and the rent can be paid on a calendar month basis.

 

1.7.1 and 1.7.3 seem clearly to refer to a monthly rental figure whilst 1.7.8 is talking about 6 months’ rent being payable.

On the tenant’s appeal to the Court of Appeal the court came down in favour of the landlord. This has been widely, but badly publicised. Badly because the headlines tend to simply say rent in advance is not a deposit and yet that is not what was said. The judgement in this case hinged entirely on the wording of this particular agreement. The following paragraphs of the judgement are of note:

…was the sum of £6,000 paid by the tenant to the landlord’s agents on 29 April 2010 paid with the intention that it be held as security for the obligations of the tenant under the statutory periodic tenancy which arose on 1 November 2010? In my view the answer to that question is plainly "No” [para 26]

Note how the court talks of the statutory periodic being a different tenancy to the fixed term for which the rent was collected. Para 38 says much the same.

So, it could be said, payment in April 2010 of a sum equal to six months' rent was paid, not to discharge a current obligation, but as security for the discharge of the payment obligations in respect of rent which would become due and payable on 1 June, 1 July, 1 August, 1 September and 1 October 2010. But, as the judge pointed out, clause 1.7 must be construed as a whole: and the clause includes paragraphs 1.7.8 and 1.7.9. Those paragraphs – and in particular, paragraph 1.7.8 - cannot be ignored. [para27]

This is the point at question. If the rent had been left as simply due on the first of each month for the term, the court may well have made a different decision and held the advanced rent to be a deposit. What saved the day was the statement that the rent for the 6 months was all due at the outset. They resolved the conflict by saying that the 6 months was for the fixed term and 1.7.1 was what happened after the fixed term.

It is, I think, common ground that, if part of the payment made on 29 April 2010 was a payment as security for the future payment of five months' rent not then due, then and to that extent, the payment was a "tenancy deposit" [Para 34]

Note if the rent was not “due” at the outset then to that extent the payment would have been a deposit. Therefore, if the rent was stated as due on each month during the term of the agreement there is a very strong chance the court would hold this to be a deposit.

The question is how far such a judgement can be stretched. The judgement made it clear that as it was a contractual agreement to pay 6 months’ rent in advance, it was not a deposit. So what if the agreement made it clear that the last month’s rent was due on the day of move in, surely this would be fulfilling a contractual obligation and so would not be a deposit?

The judge in the original county court appeal pointed out that judges should be wary of landlords trying to use clever wording in the agreement to try and get around the deposit legislation. There is no certainty of how this might work in practice, but it is likely that holding the last month’s rent would cross this line and be considered a deposit. Ultimately only a court can decide on each individual case and form of wording.

This most interesting case, often referred to in the office as the ‘missile strike’ case has certainly rocked the lettings world.

The case, Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 16 is a very unusual case and there will not be many with the same facts. Having said that, there are comments at the core of this judgement that make things very clear that will apply to other tenancies. It is for this reason that the case is so interesting. The facts of this case were the original tenancy started 8 January 2007 for a year less one day. The tenant paid a deposit of £606.66, but because this was before 6 April 2007 there was no legal requirement for deposit protection. At the end of the year there was not agreement for a renewal and so on the end of the fixed term tenancy a statutory periodic tenancy arose on the 7 January 2008.

The tenant was still in the property without any specifically agreed renewals until a section 21 notice was served on the 22 June 2011. All this was before the Localism Act 2011 came into force on the 6 April 2012 (in respect of the deposit protection changes).

The landlord made an accelerated possession application and the judge ordered possession for the 8 May 2012. The tenant appealed and the judgement was set aside on the 26 June 2012 for not having complied with the deposit protection rules. The question was, since the deposit was collected before deposit protection came into force, did the landlord need to protect the deposit?

The unfortunate landlord suffered from the poorly drafted legislation. The transitional provisions (what happens to deposits already held) were not produced for the 2007 introduction. It simply said this law came into force on the 6 April 2007. The commencement order simply said

The following provisions of the Housing Act 2004 shall come into force on 6th April 2007—

(a)in so far as they are not already in force(1), sections 53, 212 to 215 and Schedule10;

CLG put out guidance in 2007 that said:

Q. 46 What happens if the tenant has a tenancy agreement that was taken out before 6 April 2007 but he continues occupying the property after the end of that tenancy?

A If the tenant decides to remain in his existing rented property beyond the initial fixed term of 6 months, how the deposit is treated will depend on how the tenancy is continued:

For a statutory periodic tenancy – i.e. the tenancy continues with no new agreement – TDP will not apply, as no new AST will have been created.

For a replacement / renewal tenancy. This is a new AST and so TDP will apply. The deposit previously paid under the earlier tenancy is repayable to the tenant at the end of that tenancy, so it should be returned to the tenant. Alternatively, if the landlord wishes to continue to hold it as security in respect of the new tenancy it must be protected under a scheme.

Superstrike obviously followed the advice of CLG in their actions of not needing to protect the deposit and must feel hard done by with the judgement. However, CLG advice always comes with the warning that it should not be relied on.

For the appeal court there were two questions. First question, was there a new tenancy? If there was no new tenancy, then there would have been no further question. However, in section 5 Housing Act 1988 the language is very clear in talking about the “fixed term tenancy ending” (note it does not talk about the “fixed term ending” but rather the “fixed term tenancy ending”). Following the ending of the fixed term tenancy it talks about a statutory periodic tenancy arising. The following extracts highlight the language used.

Section 5

(2) If an assured tenancy which is a fixed term tenancy comes to an end…

…his right to possession shall depend upon a periodic tenancy arising…

(3)(a) …taking effect in possession immediately on the coming to an end of the fixed term tenancy

(3)(b) …deemed to have been granted by the person who was the landlord under the fixed term tenancy immediately before it came to an end…

(4) The periodic tenancy referred to in subsection (2) above shall not arise if, on the coming to an end of the fixed term tenancy, …

(4)(e) ...the other terms are the same as those of the fixed term tenancy immediately before it came to an end…

(5) If, on or before the date on which a tenancy is entered into or is deemed to have been granted…

(6) …in relation to any periodic tenancy which arises by virtue of this section on the coming to an end of the fixed term tenancy.

(7) Any reference in this Part of this Act to a statutory periodic tenancy is a reference to a periodic tenancy arising by virtue of this section.

Looking at the wording stated above the Court of Appeal said:

“It is clear from the 1988 Act that what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant's previous status. I do not see that there can be any doubt as to that.”

If there was a new tenancy, the question then arose of did the deposit need protection? The deposit needs protecting when there is a “deposit protection trigger event”. In law that trigger is the “receipt” of the deposit from the tenant. The issue was whether there had been a receipt, considering the money was paid a year before. Essentially was the trigger the physical receipt of the money (i.e. cash or cheque) or was a virtual receipt enough. The landlord was arguing for physical receipt and the tenant was arguing for virtual receipt!

The court decided for the virtual receipt as they held the deposit had been received in respect of the new tenancy. It was no longer being held for obligations under the old tenancy. They used the wording in section 212(8) of a deposit being money and money being defined as “money in the form of cash or otherwise” to decide that the “otherwise” could include an internal transfer without any physical change at all.

The Judge said:

“It follows that, on my analysis, the tenant did pay, and the landlord did receive, the sum of £606.66 by way of a deposit in respect of the new periodic tenancy in January 2008, and so the obligations under section 213 applied to the deposit so received.” Owing to the unusual facts of this case there will not be that many cases where the fixed term was granted before deposit protection, a statutory periodic tenancy arose after deposit arose after deposit protection and the tenant is still there on the same agreement now. Therefore the greatest value from this case is to learn from the principles it demonstrates.

During this case there was no decision on the prescribed information, there was no discussion of the financial penalty and they did not decide that pre 2007 deposits needed protection, unless there was a new tenancy granted post 2007. However, it was a common belief amongst many landlords and agents that the effect of this case was that prescribed information would need re-serving whenever a statutory periodic arose and it was likely pre 2007 deposits generally would require protection before a section 21 notice could be served.

The Deregulation Act 2015 has now enshrined this case into law and a period of immunity was given to landlords to protect affected deposits. This has been discussed in detail in the legislation section of this course.

In Okadigbo & Anor v Chan & Anor 2014 EWHC 4729 (QB), the tenancy commenced on 1 August 2012 and the deposit of £1,520 should have been protected within 30 days. However, the deposit was protected during the tenancy on 5 March 2013 and the prescribed information was provided on 8 July 2013.

The tenant made an application for the penalty as a counterclaim to possession and rent arrears where at the first hearing it was held-

“Finally, the Defendant seeks a penalty pursuant to Sections 213 to 215 of the Housing Act 2004. Section 214(4) provides that in the event of a breach, and here the breach is admitted, I must award the Defendant a sum of money not less than the amount of the deposit and not more than three times the deposit. The Defendant contends for the maximum sum which would be three times £1,520, a sum of £4,560. The Claimant contends for one month’s rent in the sum of £1,520. I find that the Claimants are not experienced landlords, that this is the first time that they had let out any property and that they were letting out their home. That they quite properly put the matter in the hands of professional managing agents who let them down by not complying with the terms of the Act. I find this case to be at the lowest end of the scale of culpability for non-compliance. And for those reasons I award the sum of £1,520.”

The tenant appealed submitting that the lack of experience as landlords and the fact that they put the matter in the hands of agents were matters of little weight when set against what was described as a serious failure to comply with the requirements of the Act for a considerable period of time.

The tenant sought two times the deposit as penalty accepting that-

there was a degree of mitigation in that the breach had been admitted and that there was in the event full compliance, albeit only after a period of delay.

The tenants appeal was dismissed by the High Court where it was held-

In my judgment, however, the judge was entitled to regard the question of culpability as the most relevant factor in determining what order to make and was entitled to find that the culpability in this case fell at the lowest end of the scale for the reasons which she gave. It is not as if the breach was uncorrected and therefore, although the appellants were lacking the protection for a period of some months, in the end matters were put right.

It is clear therefore the action of the landlord at least doing something with the deposit as soon as they became aware of a problem assisted. We would respectfully submit that had the landlord simply returned the deposit in full on 5 March 2013 rather than protecting, the same conclusion would likely have been reached. That would have allowed service of a section 21 notice which protection alone would not.

The problems since deposit protection legislation have caused many to ask if there is an alternative. For example is not taking a deposit now more attractive than taking a deposit? Going back to the beginning we had three reasons for the deposit and two of those have completely gone. Having a deposit still gives the tenant buy in and the question will probably be is this enough to justify the extra work and risk that is carried? Taking no deposit is an option but has other implications.

One solution might be to take good guarantors for each tenant. As long as you could attach a judgment to the guarantor there would be a degree of buy in and you should get paid. This is probably the most attractive non deposit option. Many insist that the guarantor is a homeowner in England or Wales so that a charge could ultimately be placed upon their property in the event of non-payment.

There have been a number of insurance type products offered for deposits and we have heard of some that have come and gone. There is a cost to this and one has to wonder if it will be a rising one. If the tenant will not lose financially, then they have nothing to lose regardless of the condition of the property and buy in will be low.

Some landlords and agents, perhaps combined with guarantors, are charging a higher fee on move in and pooling the extra money. This is then used for the small issues where you cannot recover the money from the tenant. The administration fee as it is commonly known must never be repaid at the end of the tenancy otherwise it will have been seen as a deposit. It is retained by the landlord for reference checking, production of the tenancy agreement and inventory etc. Obviously the tenant fees ban will stop this working.

Another critical part of this process will be the whole quality of the vetting of tenants. At least in theory, if your vetting were perfect it would only pass tenants who would, out of personal values, leave the property in the same condition as they had received it. In practice this is never going to work 100%, but careful tenant selection should not be ignored as part of the wider strategies to make things work better.

 

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