Residential Buy to Lets are no longer from a Landlord’s point of view without their problems.
One of which is the taking of a deposit.
Ignoring the problems which occurred leading to Parliamentary intervention, parliament requires deposits to be dealt with in a specific way. To ensure compliance parliament created a “statutory penalty” on Landlord’s who do not comply. That is regardless of whether the Tenant suffers any loss at all or that the deposit is in fact protected in a safe place although not under the statutory regime.
This paper is my attempt to summarise the rules for the residential Landlord.
Neutral Citation, Acts of Parliament and the CPR
For some time most Law Reports from the High Court upwards are reported. They can be checked and read by tapping in the Case Number on your computer. This is without the old-fashioned need to buy Law Reports in most cases through the system of “neutral citation”. Usually you will also find an article or reference although of variable quality close to the reported case.
Decided cases tell their own story ending in a Judgment. That Judgment is specific to that particular case but often the Court’s approach to the law and the Judge’s review of the law will apply equally to another similar case. As a result, I have referred below to the current main cases accessible using neutral citation.
In a similar way the Government now prints on the internet the main Acts of Parliament we face. It is not always as good as looking at that Act from a major legal text such as Halsbury’s which tends to have as footnotes the cases decided under the Act of Parliament but nevertheless the Act itself can now be quickly found.
Equally the Courts in England and Wales operate under the Civil Procedure Rules or “CPR”. These are always maintained and available through the Ministry of Justice website.
As a result, any of these authorities below can be found relatively quickly.
The Housing Acts
My starting point is the creation of the Assured Shorthold Tenancy or “AST” Scheme and Section 5 of the Housing Act 1988. When or if a residential tenancy was created such tenancy often continued at the end of the original fixed term. Essentially on similar terms as before, save as to time or perhaps rent and often including the deposit under Section 5 (3) (e) Housing Act 1988.
But the true starting point for residential deposits has been the Housing Act 2004. Although that itself has been amended as events subsequently occurred, as the numbers in the Act indicate. That Act created the “statutory penalty” on Landlords if they failed by mistake, error, ignorance or deliberately to take a deposit and fail to comply with the Scheme the Act established. The penalty is a cash free gift to the Tenant regardless of the Tenant’s loss or risk caused. It is from at least one but up to three times the deposit taken [Section 214 (1), Section 214 (3A) and Section 214 (4)].
It is a penalty the County Court must impose payable within 14 days of Order [Section 214 (4) Housing Act 2004].
The only mitigation in that is for amounts above the initial deposit amount. The Court has a discretion see Okadigbo & Another v. Chan & Another 2014 EWHC 4729.
So, where a Tenant has suffered no loss, but the deposit has not been properly protected under the Act [Section 213 (2) Housing Act 2004 and Section 212 (1) and (8) read with Schedule 10 HA 2004].
The Tenant may make a claim under Sections 212 and 215 C (came into force 6 April 2007) amended through Section 184 Localisation Act 2011 (post 6 April 2012) and Sections 30 and 32 of the Deregulation Act 2015 (from 26 March 2015).
Many Landlord’s allowing Tenants to “roll-over” from one fixed term to another now poses an additional risk and potentially larger penalty. Following the Court of Appeal case in Superstrike v. Rodrigues  EWCA Civ 669, even if the deposit remains in the same place (not a recognised Scheme) but is safe or not touched, the fresh term or “roll-over” triggers a second tenancy for which the penalty rules apply again. So, if the six month AST is taken with a deposit of £1,000 but that deposit is not put in a Scheme under the Act, if everyone is happy and the tenancy continues for another six months, the potential penalty at the end of the term would be an amount of two deposits not one. The Landlord faces and the Court must under Section 214 (4) impose two penalties [see also Section 215 inserted by Section 62 Deregulation Act 2015].
Recorded cases on application because of the amount involved tend to be few on the ground but application can be seen in Charalambous v. Ng  EWCA Civ or in the County Court Gardner v. McCusker .
The only mitigation permitted by Parliament and allowed by the Court is where there is a lack or reduced “culpability” by the Landlord. This is explained in Okadigbo [a decision of Mr. Justice Males which can be found on Bailii.org]. In practice, the Landlords genuine error or misunderstanding quickly corrected when the fault was explained with little or no loss to the Tenant. Of course, if a professional Letting Agent has been used the attitude is that the Landlord would have protection by suing his Agent who would be expected to know the law.
Court Procedures and Costs
The original draftsman determined to provide claims pass through Part 8 of the CPR. Part 8 for the older reader replaced the old Originating Summons way of proceeding which existed before CPR. Most claims in fact start under Part 7.
This means a Landlord has just 14 days from service to file any Defence and any evidence [CPR 8.5 (3) and (4) or lose the right to give evidence]. The first Hearing is likely to be short and swift. It is important, therefore, if a Landlord has withheld any of the deposit to set out his/her reasons very well in opening and quickly.
If there is a claim, then costs follow the event and are payable under CPR Part 56 and PD (a Practice Direction) 56. This means the typical restrictions on small claims costs which apply under Part 7 do not apply.
Typically, if a deposit is between £1,000 – £3,000 under Part 7 that would be treated as a small claim with costs either limited or not allowed but there is no such restriction with a Part 8 claim. The only likely argument may be the amount of costs claimed and whether in fact the claim itself has been “factory farmer”, so there should be a reduction but the problem to the Landlord is clear with costs being addition to the penalty. Section 214 (4) provides that if an Order is made for a penalty (and it is difficult if the case is proved how it could not be made) payment has to be made by the Landlord within 14 days. There is, however, a small allowance which may enable a Landlord to perhaps gain 28 days for the payment of a Costs Order as well.
At the time of writing there are currently only three deposit holding organisations authorised by the Department of Communities and Local Government [Section 213 (2) and Section 212 (1) and Schedule 10 Housing Act].
Parliament created a “blunt instrument” under the Housing Act 2004 specifically by making clear that all claims have to proceed under Part 8. It is, therefore, rather important for Landlords to ensure they have no culpability when dealing with their Tenant’s deposit. Also, to ensure that if they fail for whatever reason to comply, they take early steps to correct the error.
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