Tenancy deposit roundup

A few matters on the subject of tenancy deposit protection which I have been meaning to comment on for a while.

The August issue of Legal Action Magazine has two cases on tenancy deposit claims, which go to support tenants claiming against landlords who breach the tenancy deposit regulations. If you want to read the full stories, this is set out in Nearly Legal. However just to summarise:

Woods v.Harrington
This case involved a landlord who protected the deposit so late it was after the tenancy agreement had ended. The Judge held that was 'not only contrary to the letter of the law but is contrary to the spirit of the law and the public policy considerations that Parliament was seeking'. The landlord lost and was ordered to pay the penalty fine of three times the deposit sum for being in breach of the tenancy deposit regulations.

Delicate v. Sandberg
Here the landlord served the s21 notice before the deposit was protected. However notwithstanding this, in the absence of the tenant in prison, they obtained an order for possession and possession of the property via the bailiffs. On being released from prison, the tenant re-entered. The Landlords applied for an order for restitution, but the Court held that the section 21 notice had been invalid, the possession order should be set aside.

The swarb forum
My client Alan (you know who you are) has also drawn my attention to two interesting posts on the www.swarb.co.uk forum:

1. This one says that a tenancy deposit case it to be taken to the Court of Appeal, funded by one of the landlords associations. If anyone has any more information about this, please leave a comment.

2. This one is an interesting post looking at the complexities of the TDPS legislation, pointing out that the wording appears to provide for the landlord to escape the penalty by paying the deposit at any time before the court hearing, and also discussing whether the legislation can apply to former tenants as well as current ones.

I will be doing a presentation on tenancy deposits for my talk for Professional Conferences in December, so would welcome any information readers may have about new cases and developments.

(Note - you can read all my other posts on tenancy deposits here)

Letting agents going bust - three top tips for landlords to protect your position

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:

1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.

If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.

For information, the main professional bodies are:

ARLA - the Association of Residential Letting Agents
RICS - the Royal Institute of Chartered Surveyors
NALS - the National Approved Letting Scheme
NAEA - the National Association of Estate Agents
The Guild of Letting & Management

2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a 'fine' of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.

Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.

The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.

3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:

• The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
  
• Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom

It would also be useful to have:

• Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
  
• Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).

If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.

Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.

My ten top posts on tenancy deposits (as @ 19/08/09)

I have done a lot of writing about the tenancy deposit protection scheme (TDPS) regulations and the problems they have thrown up. You can read them all of course by following the link to the tenancy agreements tag. But which ones are most worth reading? Here are ten suggestions:

1. Tenancy Deposit Protection - 62% failure

This has to be my most popular post ever. It was written over a year ago and still shows up in my stats as one of the most visited posts. It has an amazing 58 comments - people kept asking questions which I answered, until eventually I felt it was getting silly and stopped. If you ask a question there now I won't answer it, in fact it won't even get allowed in now, as the post is officially closed. It is still worth reading though, not so much for the post itself but for the questions and comments which follow.

2. Complaints about the DPS
This is another popular one in the stats, probably because of its title. Many people do have problems, with all the tenancy deposit companies, and this post (and the posts linked from it) gives some guidance on what you should do. In particular there are a few comments on using the Arbitration Act to challenge unfair decisions (a suggestion made by barrister Francis Davey). This post also features the fabulous DPS tea cosy.

If you have a complaint against your TDPS, you should also read:

3. Complaints against the DPS - the governments response
This reproduces a letter sent to one of my clients, who wrote to the Department of Communities and Local Government with a complaint about a DPS arbitration. With thanks to my client (you know who you are) for letting me reproduce the letter.

4. Deposit protection avoidance
This is another popular one and looks at ways landlords can avoid using the tenancy deposit protection schemes. It should be read in conjunction with:

5. Advance rent = deposit?
This looks at a case which throws doubt on the legality of the practice of taking two months rent in advance instead of one month and a deposit. This course of action is not recommended by me now (although before this case I thought, along with many others, that it was acceptable).

6. Landlords out of pocket for deposits - DPS may best best after all
This is an important post as it explains why landlords may be vulnerable if their agent becomes insolvent and the tenancy deposit money is lost.

7. Tenancy deposits with student lets
This is a helpful post for landlords with students, as it looks at what you should do if you have lots of tenants and guarantors signing at different times, before the start of the tenancy. With thanks to Roger for providing the information.

8. Four more cases on possession proceedings
There are many case reports on the Landlord Law Blog on tenancy deposits, but this post looks at four (although one is on licensing), and gives a useful overview of the relationship between the TDPS rules and possession proceedings. If you are interested in case law, you should also follow the link to read about the Sheffield case, one of the very few cases which have been appealed (although sadly, not to the Court of Appeal).

9. New tenancy deposit case - deposit paid before 7 April 2007
This considers a useful case (albeit, as with all of them, a county court decision) as it goes to prove what we lawyers have always thought. Ie that deposits paid before 7 April 2007 where the tenancy is renewed, are caught by the regulations.

10. Tenancy Deposit muddle
Finally, this is an example of the byzantine complexity of the TDPS rules, and how new interpretations are always springing up to ambush us, after we thought we had got a grip on them. With thanks to Alan who drew the forum post mentioned, to my attention.

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So there you are. Ten posts (plus linked posts). These will give you a flavour of this, surprisingly complex, subject. If you want more, you will find them all here.

Case throws up injustices in the tenancy deposit scheme legislation

A very interesting article in the New Law Journal (NLJ) from Laura West, barrister, Arden Chambers and Marianne Rivett, solicitor, Kennedys (currently available here) highlights some of the injustices and inconsistencies in the current tenancy deposit protection scheme (TDPS) legislation.

The article considers a case heard in May 2009 in the Central London County Court, Jacklin v Fraser Property Management Ltd, T/a Martin and Co (Bedford). Here the landlord was supposed to protect the deposit but failed to do so. When the agent (the defendant in the case) discovered this, he arranged for the deposit to be protected. The landlord subsequently went bankrupt, and the tenants abandoned the property during the fixed term and stopped paying rent. However despite this, on discovering the problem with the deposit, they brought a claim for the penalty for default, which is the fine of 3x the deposit sum.

The Judge chucked the case out because the claim had been improperly brought by only one of joint tenants (something future joint tenants should note when bringing claims). However the Judge went on to point out various problems as he saw it which would have put him in an impossible situation, had he not been able to do this (this section quotes from the NLJ article):

- He found he would have been compelled to order that the defendant pay the penalty despite the clear arrangement between the defendant and landlord—a completely unjust result. The inequity of such a decision would have been compounded by the fact that the landlord had since gone bankrupt and, had it not been for the actions of the defendant, the monies would have been as good as lost to the claimant.

- Had he been compelled to order the payment of the penalty by either the defendant, or indeed the landlord, the claimant may well have benefited from an enrichment which would have been unjust since he had abandoned the tenancy during the fixed term—where the landlord did not accept the abandonment—and ceased to pay rent without any legal basis for doing so.

- s 213(3) would require the court to either order the person who appears to the court to be holding the deposit to repay it to the applicant (s 213(3)(a)) or order that the person pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme (s 213(3)(b)) within 14 days.

Any such order would be completely pointless in the circumstances since the deposit was already protected in the insurance backed scheme. Furthermore, were the deposit protected in a custodial scheme the court would be compelled to order the return of the deposit to the tenant (even where the landlord was entitled to a set off).

However, where the landlord had chosen the insurance scheme (as in Jacklin) the court could manipulate the system and merely order the transfer of the deposit funds from an insurance backed scheme to a custodial scheme pursuant to s.213(3)(b) in order to avoid returning the monies to the tenant.

The NLJ article then goes on to consider three other problems with the legislation:

(1) Set off: the Judge in this case appeared to think that he would have allowed set off, whereas in another case, Stankova v Glassonbury, the Judge refused set off on the basis that if the landlord had registered the deposit he would have been able to do this via the arbitration scheme. But then in another case in Tunbridge Wells, Davies v Smith, set off was allowed!

(2) New tenancy agreements. It now seems that deposits paid in respect of a tenancy starting before TDPS came into force in 4/07 will be caught if a new tenancy agreement is given to the tenant but this is not clear from the legislation, and

(3) Whether a tenant receive the benefits of the legislation after the tenancy has ended. The legislation does not define 'tenant' and it is arguable that it only means current tenants. Although I would say that this would also be unfair, as often tenants only discover that a landlord has failed to protect after they have left the property and seek to claim the deposit. They then find that the landlord unreasonably fails to return it and that they are deprived of the benefit of the free arbitration service, because the deposit is unprotected.

I think we will all agree with the NLJ article's concluding comments:

As a result of the draftsman’s haste to get this scheme on the statute books, it would seem that this supposedly “no fuss” mechanism for tenants has run into problems. County court judges seem increasingly perplexed that they are compelled to make orders within a rigid system, with the potential for inequitable and unjust results. This is in clear conflict with the original aims of the legislation. In giving his judgment in Jacklin DJ Lightman commented that “the sooner Parliament looks at this the better”. In the interim it would seem that there is a real need for guidance from the higher courts and, in the longer term, need for amendment of the legislation.

If you have found this summary interesting, I would recommend you read the original article in the New Law Journal. Authors Laura West, barrister, Arden Chambers & Marianne Rivett, solicitor, Kennedys.

Tenancy Deposit Protection - 62% failure

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

I read a news items on the Deposit Protection Service website today which reported a survey showing that 62% of private landlords are flouting the tenancy deposit rules, and not protecting their tenants deposits.

If this report is true, and I suspect it probably is, or at least very near the truth, then this means that only letting agents and the better landlords are complying – meaning that those the scheme is really aimed at are ignoring it.

One probable reason for this is that the penalties (in particular the provision for the tenant to be awarded a 'fine' of three times the deposit money) appear in reality to be difficult to enforce. This is partly because the legislation is unclear. Upon careful reading it does not actually say that the fine is automatic if the landlord fails to protect within the time limits (although they do appear to indicate that it might be if the landlord is in breach of his schemes rules - there may be grounds for a test case there).

I am only aware of one case where the tenant succeeded. This was reported in Legal Action Magazine (June 2008) and was where the tenant had actually vacated in response to a section 21 notice served on her. Here the landlord was unable to remedy the position (ie by protecting the deposit out of time) and the Judge reluctantly made the order. However if the tenant had still been in possession, no doubt the landlord would hastily have arranged for the deposit to be protected, and the Judge would then have refused to make the order. The Legal Action report made it clear that the Judge only awarded the fine with reluctance and because the legislation gave him no alternative. (NB I would be very interested to hear of any other cases.)

[Note - since this post was written in July 2008, there have been considerably more cases reported, see the other posts on this blog on tenancy deposits to find them]

What is doubtless happening is that many landlords are taking the view that they will not protect deposits unless tenants threaten court action. However most tenants do not do this. Many will be wholly unaware of the tenancy deposit protection provisions, particularly, for example, if they have only recently come to this country and English is not their first language.

However, even if they are articulate British nationals, most people, even if they have a vague sort of idea that the landlord ought to do something about the deposit, will just assume that either he has done it or that the rules no longer apply. Ordinary people do not go around assuming that their landlords are breaking the law, or threatening court action. Generally people are unfamiliar with the courts and find the very thought of bringing a court claim scary.

One answer I suppose, is to do more to make people aware of the tenancy deposit scheme. Maybe it ought to feature in one of the soaps, there is probably a storyline in there somewhere. The other is to amend the rules to make it clear that if the landlord has not protected the deposit within the time limits, he cannot prevent the tenants succeeding, in a claim for the 'fine', by protecting the deposit out of time.

NB Tenants wanting to bring a claim, should note that there is a do-it-yourself kit (Kit 2) available via my web-site www.landlordlaw.co.uk.

[Note - there a many questions from landlords and tenants in the comments, most of which I have answered (although COMMENTS ON THIS POST ARE NOW CLOSED and no more will be added or answered). Please bear in mind that new cases (and interpretations of the rules) have come along since my answers were given. Note that there are many other more recent posts also on tenancy deposits which you can read via this link.]

[Note 2 - see my post here one year on : Tenancy deposit protction - now only 30% failure]

A rant against government stupidity

It has now been officially confirmed that the introduction of the tenancy deposit scheme has been put back to April 2007. One of the reasons apparently is that during consultation the landlords organizations complained that the way the scheme was set up, if the tenant did a runner leaving rent arrears, the scheme would not release the deposit to the landlord who would have to go to court to get a CCJ first!

I sometimes wonder what the people in charge of things nowadays use for brains. Surely it must have been obvious that this is unfair? Why was it necessary for the landlords organisations to have to point this out?

Another backtrack that has taken place recently is the decision to remove the home condition reports from HIPS (or at least not make them mandatory). Conveyancing is not my subject but colleagues who specialize in this work have been saying for months that the system is misconceived, was designed to solve a problem that did not really exist, and that it would probably prove to be unworkable. Now the government are looking silly. Why don’t they listen to advice?

Another own goal is their attempt to destroy the legal profession by threatening their independence, which as reported in The Times today is the subject of severe criticism by a parliamentary committee. Indeed the new President of the Law Society has said that the new wide and "unnecessary" powers taken by the Lord Chancellor will allow him to intervene in law firms - or even dictate that "every solicitor should have a blue-screen saver", if he wanted. Already foreign bars, for example Germany, have warned that if other proposed ‘reforms’ to allow firms to be owned by businesses go ahead they will not be willing to deal with them. The legal profession, particularly in the city, brings in huge sums to this country and is widely respected – why should the government wish to threaten this? What good will it do? Apart from removing the possibility that a vigorous legal profession might undermine half baked government initiatives, that is.

One reason for all of the above may be the desire to appease the consumers organisations (who support all these initiatives) at all costs, and accepting what they say without question. I have no quarrel with ensuring a fair deal for consumers, but the consumer organisations do appear to be unnecessarily skewed against landlords and the legal profession. But it will be dangerous to undermine either as this country needs landlords (to house those who cannot afford to buy) and an independent legal profession.

Another TDPS case - Locke & Orchard v Osborn

I have just learned about this case decided at the end of June. Here Mrs Osborn was let down by her agents, Countrywide Residential Lettings who, despite having protected the deposit, had failed to serve notice on the tenants giving the prescribed information, or return the money within the proper period of time. As a result, an order was made that she should pay the 'fine' of three times the deposit amount.

The shocking thing about this case is that apparently the elderly landlord, suffering from dementia, had to be driven by her son from her care home in Norfolk to the court hearing in Portsmouth. Which not surprisingly she found completely baffling. This and the long journey seems to have been a pointless exercise and unnecessarily distressing to Mrs Osborn.

My initial thoughts were that it should have been possible to avoid this. For example solicitors could have arranged for representation at the hearing (there are professional companies which provide advocacy services). Mrs Osborn could have given evidence by way of an affidavit (presumably she would just say that she had left matters in the hands of her agents), and a medical certificate could have been obtained to excuse her non attendance. As the property was being managed by letting agents, they were the ones to give evidence, not her.

However as the whole problem was caused by the agents failing to deal properly, Mrs Osborn will have grounds to claim re-imbursement from them. In fact from the reports I have seen, it looks as if they accept this.

But this just goes to re-inforce the fact that landlords must protect tenancy deposits and serve notice with the prescribed information on the tenant. If both are not done the landlord is at risk.

Possible scam with tenants' deposit money

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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There has been quite a bit of publicity over the last few months about agents and the unjust charges they impose on both tenants and also the landlords they represent. The CAB did a report on this which I wrote about here. I have now been contacted by a tenant telling me about what he suspects may be another scam by agents (and potentially also landlords), although it is not something he can prove. I copy his email below:

I recently quit a tenancy in Bath and moved to London. The deposit on the Bath flat was held by the DPS [Deposit Protection Service]. I couldn't remember how much the deposit was, but I had the DPS letter saying it was £1050.

While clearing out some boxes, I found some more paperwork: the receipt from the letting agent that showed I'd paid £1575 deposit. I keep my bank statements, and these confirmed the deposit was £1575. The letting agent had placed £1050 with the DPS and kept £525.

A percentage of tenants - especially after a long tenancy - are going to forget the amount of the deposit and / or lose their original paperwork. At the end of their tenancy, they ring the DPS, establish themselves as entitled to the deposit and are told how much was lodged with the DPS. If the letting agent or landlord only lodged part of the deposit with the DPS, the letting agent / landlord get to keep the rest. If the tenant knows how much the deposit was and can prove it, they just apologise and agree to return it.

In my case, the letting agent accepted immediately what had happened, said they'd made a mistake and apologised.

I think it would be hard to detect this happening. I can't prove it wasn't a mistake. I should have checked the DPS letter when it arrived but even if I had, the letting agent would have apologised and placed the correct amount with the DPS.

The scam only works when the tenant forgets the amount and in that situation, they don't even know they've been robbed. The landlord / letting agent get to keep a percentage of deposits they handle. This can be a lot of money if only a small proportion of tenants "forget".

If nothing else this story emphasises the point that tenants must check everything so as to protect their position (and I would add that the correct amount of the deposit should be set out in the tenancy agreement). The agent in this case could have made a genuine mistake of course, but did they? Have any other tenants experienced this?

Tenancy deposits with student lets

Readers may be interested in hearing about the solution to a problem experienced by a Landlord Law member, Roger, who lets to students.

Roger uses a Shorthold Tenancy Agreement (four students per house) and formerly obtained a Rent Guarantee from the parents. The procedure then (i.e. before the introduction of the tenancy deposit protection schemes) was that he would take a deposit (so that they did not go elsewhere and not tell him, which has happened) and wait for the parents to return the Guarantee (which can take weeks). However he was concerned about this procedure after the introduction of the tenancy deposit scheme and whether it would bring into play the requirement to protect the deposit within two weeks of payment.

Roger needs to ensure that the 4 students who have confirmed that they wish to rent a house do not change there minds while he is waiting for their parents to return the signed Rent Guarantee. This is critical because the university issue their list of houses available early in February and if landlords do not rent their house soon after this date it can be very difficult finding tenants.

Roger spoke to an advisor at My Deposits who confirmed that it would be acceptable to take a sum from the tenants, e.g. equating to the first months rent, inform them that this is a 'non returnable holding sum', and not take the deposit until the parents return the Guarantee. At this point the Tenancy Agreement can be finalised with the holding sum covering the first month's rent, the further sum paid at that time being used for the deposit.

My Deposits also confirmed via email that this procedure was appropriate. Their email stated:

"I can confirm this procedure as advised by my colleague is correct. When the monies paid by the tenants is classed as a ‘non refundable holding fee’ this would not require a protection with our scheme until the agreement is finalised and the monies is classed as the actual deposit for the AST agreement. You would then be able to proceed with your deposit protection with our scheme and provide the tenants with the prescribed information as required under the current legislation."

Consultation on private housing in Northern Ireland

A report on the BBC web-site states that plans to overhaul the private rental sector are being considered in Northern Ireland.

The key proposals are -

• A central scheme for tenants' deposits so that landlords cannot simply refuse to pay back deposits for "flimsy reasons"
  
• Government deposit guarantee for vulnerable people who cannot afford them
  
• An independent body to manage disputes between landlords and tenants and encourage compliance with their tenancy agreement
  
• New fitness standards implemented by 2015. Landlords penalised if they do not meet these standards
  
• Much greater awareness of the rights of tenants and the responsibilities of landlords
  
• Longer periods of notice to quit for long term tenants.

You can read more about it in the press release from the Department for Social Development in the Northern Ireland Executive.

New tenancy deposit case - deposit paid before 7 April 07

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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This is a new case reported in the excellent Legal Action Magazine, Saad v. Hogan from the Brentford County Court.

Ms Hogan paid her deposit, £1,000, in November 2005. Her tenancy was renewed in November 2007. In June 2008 the landlord brought proceedings for possession based on the serious rent arrears ground. Ms Hogan counterclaimed for the 'fine' of three times the deposit amount on the basis that the deposit had not been protected, and asked that this be offset against the rent arrears.

The Judge at first instance found for the landlord and made the possession order. This was on the basis that there was no obligation on the landlord to protect the deposit, as no deposit moneys had been paid when the tenancy was renewed in November 2007, but only before the regulations came into force on 7 April 2007. Ms Hogan appealed.

The appeal Judge viewed the case differently. He found it extraordinary that there was no provision in the legislation for this situation. However the main purpose of the legislation was to protect deposits. Although there had not been any physical or electronic payment of money in November 2007, in a sense there had been a payment at that time. He allowed the appeal, and awarded £3,000 to Ms Hogan to be offset against the rent arrears.

As this case was an appeal to the County Court Judge it will have more authority than District Judge decisions. However it will still, technically, not be binding. It would be nice if this could go to the Court of Appeal, so this point could be settled.

However the case does support the view generally taken by lawyers, that deposits paid before April 2007 are caught by the regulations if a new tenancy agreement is given to the tenant after that date.

mytenancydeposit.co.uk - not a recognised tenancy deposit company

I, and probably many landlords and other property professionals, have received notifications from both The Deposit Protection Service and MyDeposits warning that the web-site mytenancydeposit.co.uk is not that of a government authorised tenancy deposit scheme.

Landlords and agents should beware. If you protect your deposit with this company, this will not constitute compliance with the tenancy deposit regulations. You will remain vulnerable to a court claim from your tenants for the 'fine' of three times the tenancy deposit amount.

There are only three companies you can protect your deposit with:

1. The Deposit Protection Service - www.depositprotection.com
   
2. My Deposits - www.mydeposits,co.uk, and
   
3. Tenancy Deposit Scheme (from the Dispute Service) - www.thedisputeservice.co.uk

Information on the My Tenancy Deposits site show that it is owned by a company called MTD Secure Limited. A search at Companys House shows that this company was incorporated on 28 January 2009,. The company has offices in Newhall Street, Compton in Birmingham.

91% of tenants suceed at arbitration say My Deposits

A news report out by My Deposits shows that 91% of tenants get their money back at tenancy deposit arbitrations. The report states:

"Figures from mydeposits.co.uk show 91 per cent of dispute cases settled by the scheme's independent adjudication service found in favour of the tenant. The average amount in dispute was £733, which is significantly lower than the average deposit of £1,052.

In only nine per cent of cases landlords and letting agents were able to withhold the full deposit."

However the report goes on to say that only a small proportion of deposits, 0.35%, actually go to arbitration. This could mean though that it is still largely only the good landlords who are protecting deposits, and that the bad landlords, the ones who will habitually make unjustified deductions, are still refusing to comply.

It would be interesting if the Deposit Protection Service could follow up their survey reported in July 2008 (and discussed by me here) that 62% of landlords were failing to protect.

Who's afraid of the TDS?

Rummaging in Google's news pages recently I came upon an interesting report which indicates that landlords are so worried about the pending tenancy deposit scheme (being introduced under the Housing Act 2004) that they have decided to continue to pay letting agents to manage their properties for them, rather than go it alone. The article concludes that this is an unforseen effect of the new law, and suggests that the increasing regulation and bureaucracy may result in landlords leaving the private rented sector altogether. Not something I suspect that the government will want.

Of course this trend might also be because landlords think that they will have to use an agent. A recent questioner to my Q&A page on my website seemed to think that she would only be able to comply with the new laws by using an agency. I am sure that this is a view which many agents would like to encourage! However it is not correct - the new schemes will have to be available for both landlords letting in person and those letting via agents.

In fact a little bird has told me that this might be causing problems, in that none of the companies who have tendered to run the scheme have satisfied the government's requirements in this respect, which means that it is possible that they may not be able to introduce the scheme in October, as intended, after all. However 1 October is still clearly given as the start date on the ODPM website, so we will have to see what happens.

Landlords out of pocket for deposits - DPS may be best after all!

A report published in The Times today highlights the growing problem of landlords having to pay up for deposits, when agents go bust.

Under the two 'insurance based' tenancy deposit schemes (MyDeposits and the Tenancy Deposit Scheme run by the Dispute Service) if the agent deals with the deposit on behalf of the landlord, the agent holds the deposit money. If the agent becomes insolvent, this does not affect the tenant (other than perhaps a delay in getting paid) as the insurance company pays out.

However it will have a serious effect on the landlord. This is because the deposit schemes are entitled to recoup their losses by claiming the money back from the landlord, on tbe basis that the landlord is the employer of the failed agent.

The Times report states that "hundreds of letting agents have ceased trading in recent months" and goes on to report that "MyDeposits has received 279 notifications of a letting agent going into liquidation and being unable to return the deposit". In the majority, if not all of those cases, the landlord will have had to pay.

The problem is more likley to occur with MyDeposits as the Dispute Service are now refusing to accept agents who are not members of ARLA, RICS or a similar professional body.

Landlords letting through non regulated agents should therefore think carefully before allowing the agent to manage the deposit unless it is protected by the Deposit Protection Service where the deposit money is actually lodged with the company so there is no possibility of it being lost.

Stand your ground on damage deposit claims

In my last post I talked about the case of my poor clients, evicted by their landlords’ mortgagee. In fact the situation was worse that I let on, as not only were they evicted, they also didn’t get their deposit back!

My advice to them was (inter alia) to threaten the agents with an application under the Tenancy Deposit Protection Scheme regulations for the return of the deposit and three times the deposit sum ‘fine’ provided for under the regs. The deposit after all had been paid to the agents. In my view the fact that they had passed it on to the landlord (which turned out to be a dodgy company - almost certainly without assets) did not excuse them from their responsibility to protect the deposit. Otherwise this would be driving the proverbial coach and horses through the regulations. My letting agent client had told me that they would never pass a deposit on to a landlord unless they were 100% certain that it was going to be protected.

Initially the agents tried the brush off – “nothing to do with us, we just found the tenants, you need to claim the deposit from the landlord”. My client then spoke to the Deposit Protection Service, who told him that the agents were right, and that they could not claim the deposit from them.

Thankfully, although initially knocked back by this, my client decided to send a stiff letter to the agents, threatening court proceedings, and claiming the deposit, the 3 x fine, all his expenses (including an item I had privately told him was not really recoverable), and substantial compensation. The agents consulted their solicitors and their insurers, and, to my clients surprise and delight, agreed to everything except the compensation!

So a happy ending and champagne all round! But what a good thing my client took no notice of the DPS and decided to send the letter anyway. Otherwise they would now be several thousand pounds poorer.

Four more cases on possession proceedings

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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There are four interesting cases in the most recent edition of Legal Action Magazine on proceedings for possession under section 21 and the provisions of the Housing Act 2004, so I hasten to share them with you. They all cover different points. Although they are all County Court decisions and therefore not binding on other Judges, they show how Judges are thinking and interpreting the statute.

Universal Estates v. Tiensia
Croydon CC, 23 Feb 2009
In this case the deposit was paid in instalments. The tenant, Ms Tiensia, fell into arrears and the landlord served a s8 notice based on rent arrears. Ms Tiensia counterclaimed for the 3 x deposit award on the basis that the deposit was unprotected. The landlord then protected the deposit with MyDeposits and faxed the certificate to Ms T. However the Judge found that this was not enough. The landlord had failed to comply with the initial requirements of MyDeposits terms and conditions, and was thus in breach of s213(1) and (4) and s214(1)(a) of the Housing Act 2004. Order for £7K to Ms T.

I was particularly pleased (and perhaps a little smug) to see this decision, as the point about the failure to comply with the schemes own rules, is something I remember writing about some time ago, but has not so far as I am aware been mentioned by anyone else until now.

Seghier v. Rollings
Bow CC, 6 Mar 2009
Here the landlord, Ms Rollings, only protected the deposit shortly before the hearing and handed the certificate to the tenant at court. However she did not fully comply with the notice requirements, and for example had not handed over the MyDeposits leaflet. Here the Judge 'distinguished' (legal phraseology meaning the two cases are not the same) the Sheffield case of Harvey .v Bamforth (where the landlord won) because here the landlord had not fully complied with s214(6)(a). Order in favour of the tenant.

Beal v. McCartney
Plymouth CC, 12 Mar 2009
Poor old Mr Beal was evicted by his landlords mortgage company due to his landlords mortgage arrears. As he had not been given any information about his deposit by his landlord, he sued for the fine of 3 x the deposit sum. He succeeded and was also awarded £500 damages for the eviction (legal terminology is for 'breach of quiet enjoyment'). However the fact that he was evicted by his landlords mortgage company indicates that his landlord is in probably in dire financial problems, so this may be a bit of a phyrric victory.

Raco Ltd v. Roberts
Central London CC, 6 Mar 2009
Unlike the others in this post, this case is about failure to obtain an HMO license. A good sub heading for this case would be 'if at first you don't suceed, try, try and try again, and still fail'!

Here the landlord had served two section 21 notices and issued two separate sets of proceedings. Mr Roberts, the tenant, defended the first on the basis that the s21 notice had been served before the tenancy was signed and at a time when the property was unlicensed, and the second set of proceedings just on the basis that the property was unlicensed. The two cases were joined and dealt with together. The landlord then served a further section 21 notice (presumably by this time having obtained a license) and applied to the court to have the proceedings amended to rely on this notice rather than the earlier two. However the Judge refused the application as a 1996 Court of Appeal decision (Lower Street Properties v. Jones) has held that the s21 notice must expire before the issue of proceedings. (Presumably Raco Ltd have now changed their lawyers and started a new set of proceedings, but we are not told about this).

In conclusion
All of these cases were resolved in favour of the tenant. This just goes to show how careful landlords need to be to follow the rules properly. If you don’t, you risk not only losing your claim for possession, but also being made to pay your tenants legal costs. Which, if they were in receipt of legal aid, could be expensive.

Help for tenants with tenancy deposit protection claims

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I read a news report recently which said that about 97% of all landlords holding deposits have not yet joined one of the government authorised tenancy deposit schemes. Although one reason for this surprisingly high figure may be that many landlords have not needed to join a scheme yet, it is still disgraceful. So I have decided to do something about it!

I have therefore drafted up two county court claim forms (one for tenants who paid deposits after 6 April 2007 and one for tenants who paid the deposit earlier and whose tenancy was renewed after 6 April 2007) and a set of instructions, to enable tenants to reclaim their damage deposit and the 'fine' of three times the damage deposit figure, and these are being given away free of charge to annual members of my online service at www.landlordlaw.co.uk.

I did consider adding this to my list of online kits. However I charge extra for these as they are very detailed and include telephone advice. The tenancy deposit claim is fairly straightforward (4 pages of instructions as opposed to about 30) and I know that many tenants will not be able to afford my subscription fee and an extra fee for a kit. I am afraid I do want the subscription fee though (I have to earn a living somehow)! Also if the tenants are members, this will allow them to ask questions in the members discussion forum, which will serve instead of the telephone advice.

Hopefully my landlords will not be too annoyed about this and think I have betrayed them! But my site is for both landlords and tenants, and I have to keep tenants interests in mind too. All my landlord members should be already complying with the scheme anyway, and if they are dong it, why should other landlords get away with flouting the law?

I would be interested in any feedback from tenants using the forms to bring a claim.

More tenancy deposit muddle

One of my clients has drawn my attention to an interesting forum discussion on tenancy deposit claims here.

It seems from this that many Judges (although not all) are taking the view that the fine of three times the deposit amount should not be awarded if the landlord refunds the deposit before the court hearing. The reason for this is the wording of the relevant sections. This is s214 (3) and (4) which say (after the first part of the section says what things trigger a claim):

"(3) The court must, as it thinks fit, either—
(a) order the person who appears to the court to be holding the deposit to repay it to the applicant, or
(b) order that person to pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme,

within the period of 14 days beginning with the date of the making of the order.

(4) The court must also order the landlord to pay to the applicant a sum of money equal to three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order."

The argument is that the words ‘must also order’ in (4) means that if the award in (3) is not payable because the landlord has returned the deposit, the award in (4) is not payable either. You can only have both or neither.

If a landlord can escape liability by simply handing over a cheque in the court waiting room, five minutes before the hearing, it makes the penalties look ridiculous.

We urgently need a test case to go to the Court of Appeal so we all know where we stand.

Tenancy Deposit Protection – deposits paid before 7 April 2007

I am obliged once again to the Pain Smith blog for drawing my attention to a new County Court case on the Tenancy Deposit Protection Scheme regulations.

One of the many imponderables of the regulations is whether or not they apply to deposits taken before 7 April 2007, where a new tenancy agreement had been taken after that date. In a County Court decision in Clerkenwell & Shoreditch recently, the Judge took the view (in my opinion, rightly) that when the tenancy is renewed (by the parties signing a new tenancy agreement) the deposit is, in effect, taken again and must therefore be protected from that point.

The blog also raises the spectre of periodic tenancies coming into the same category. This is because of section 5 of the Housing Act 1988 which provides for a new periodic tenancy to arise after the expiry of the fixed term. If the courts (and in particular the Court of Appeal) took this view, it would have very serious implicantions for practically all tenancies where the fixed term ended after 7 April.

My advice to all landlords holding deposits (or rent paid in advance) is that you should arrange to have them deposited as soon as possible (if you have not done so already), whether or not the deposit was paid before 7 April 2007. Only this way can you be (relatively) safe from claims from tenants under the regulations.