Since 6 April 2007, the well-worn road of disputes about the return of tenants’ deposits has taken a new turn with the statutory obligation on the landlord to protect the deposit within an authorised tenant deposit scheme (section 213 Housing Act 2004).

The landlord must comply with the initial requirements of an authorised scheme in relation to the deposit within the period of 14 days beginning with the date on which it is received (section 213(3)).

The landlord must give to the tenant relevant information about the scheme within the same period (section 213(6)). What if the landlord fails to comply with his obligations?

First, the court must order payment by the landlord of the deposit to the tenant or into a custodial scheme (section 214(3)).

Second, 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’ (section 214(4)).

Third, the landlord may not give a section 21 notice if the deposit is not being held in accordance with an authorised scheme or the initial requirements of the scheme have not been met or the landlord has not given to the tenant the required information about the scheme (section 215).

The question as to the circumstances in which hapless or unscrupulous landlords should be ordered to pay three times the deposit to the tenant has now been considered by the Court of Appeal in Tiensia v Vision Enterprises Limited (t/a Universal Estates) and Honeysuckle Properties v Fletcher, McGrory and Whitworth [2010] EWCA Civ 1224.

The facts were similar and concerned late compliance by the landlord under existing tenancies.

Lord Justice Rimer, (with whom Lord Justice Thorpe, agreed) held that the pre-condition of a tenant’s application to the court under section 214 is not a failure by the landlord to comply with the ‘initial requirements’, or the notification thereof to the tenant, within the 14-day period specified in section 213.

It is the failure to comply with either of those obligations at all. The landlord has until the hearing of the claim to comply with the requirements.

Compliance by the landlord with his dual obligations under section 213(3) and (6) by the date of the hearing will furnish him with a complete defence to any claim by the tenant under section 214.

The reasoning for the interpretation adopted by the majority is essentially this:

Lord Justice Sedley gave a dissenting judgment.

  • Had the time for compliance been the focus of section 214 then the ‘initial requirements’ reference would have been to section 213(3) rather than to 213(4) and the notification reference would have been either to section 213(6)(b), or else to section 213(6) as a whole, rather than simply to section 213(6)(a);
  • The tense of the language in section 214(1)(a) and 214(2)(a) is consistent only with an inquiry as to whether the ‘initial requirements’ and notification obligations have been performed at all, and not with whether they were performed within a particular period that is now past. That is the natural sense of ‘have not’ and ‘has not’ in both sub-paragraphs;
  • Under section 215, so long as the initial requirements have not been complied with (including after the expiration of the 14-day period), there will be a bar on the service of a section 21 notice. It is impossible to interpret section 215(1)(b) as intending to impose a permanent such bar in the event of a failure to comply with the 14-day requirement;
  • Such a ‘strict’ interpretation is also a proper one to apply to section 214 that is manifestly penal in intent;
  • The interpretation is consistent with the purpose of the legislation, namely, to achieve the due protection of deposits paid by tenants, ideally within the 14-day period but, if not, then later. It is not intended to punish landlords who may for example, for innocent reasons, be just a day late in securing such protection;
  • There is nothing in the legislation that points to any date earlier than the date of the hearing date. The use of the present tense –‘is satisfied’ – in section 214(2)(a) appears to support the case for the hearing date and section 214(2)(b) shows unambiguously that the relevant date for its own purposes is the hearing date;
  • Although, the tenant ought to write a letter before claim, and his omission to do so may present him with a costs risk if he does not, if the competing interpretation is correct then the prospect of a section 214(4) order in his favour may be sufficiently attractive to encourage a tenant to ambush the landlord;
  • It should be interpreted in a way that avoids litigation. Litigation will or should be avoided if, following a letter before claim, the landlord promptly puts his house in order. If the landlord declines or fails to do so, then of course it is open to the tenant to pursue his section 214 claim. If the landlord later (before the hearing) repents and remedies his defaults, the claim will still fail, although the tenant will ordinarily recover his costs. He may not recover his full costs, but there is nothing unusual about a claimant not doing so. The tenant will bring his claim knowing of that risk.

He described the interpretation of the majority as one which drains the scheme of effect: in the event that ‘a landlord is not culpably in default if, months or maybe years after the expiry of the fortnight given by law for compliance, he or she eventually complies with the initial requirements, then the scheme is a dead letter’.

The extent to which it is drained of effect is emphasised by Lord Justice Rimer’s conclusion (which I agree follows from his reading of the legislation) that the landlord’s opportunity for penitence extends not only to the date of issue of the tenant’s claim or (more probably) counterclaim but to the eve of judgment.

‘If this is right, no tenant could ever sensibly be advised to sue or counterclaim for the penalty.’

Equally, the competing interpretation would lead to the result that under section 215 the defaulting landlord, whether culpable or inadvertent, is debarred indefinitely from recovering possession.

‘Even in a statutory scheme designed to concentrate minds on the protection of tenants’ deposits, this appears a remarkable result, akin to a forfeiture.’

Understandably, he described the situation as imposing an ‘intractable dilemma’.

He reasoned that section 213(4) defines the initial requirements as requirements imposed by an authorised scheme which fall to be complied with by the landlord on receiving a tenancy deposit.

He criticised this as unhelpful drafting.

Until the deposit is handed over by the tenant, no obligation exists to pay it into any scheme: section 213(1). On receipt of it the landlord has to select a scheme in which to secure the deposit.

It is only at that point that the initial requirements, which will always be those of a particular scheme, can be known. So the subsection has to mean that the initial requirements of a scheme are those which become operative not on receiving the deposit but on entry into the scheme.

Consequently, the effect of section 213(3) that the initial requirements are to be complied with within 14 days from the receipt of the deposit is not ‘vacuous’.

The 14 days ‘do constitute a statutory time limit for the obligatory entry into one authorised scheme or another’.

While the judgment may make unpleasant reading for parliamentary counsel, it does answer an important question – the 14-day period is a starting point for a claim but the landlord has until the hearing to remedy the default.

A letter of claim would seem a vital step before making a claim to provide some protection on costs should the landlord subsequently avoid the default, but it is cold comfort to the tenant.

There are still matters left open, for example, what is the effect if the landlord has obtained possession before the monetary claim has been determined (Hashemi v Gladehurst Properties Limited, Clerkenwell and Shoreditch County Court, 9 December 2009, Legal Action February 2010, where HHJ Cryan held that the scheme was effective after the end of the tenancy)?

This may be the next issue waiting for the court of appeal.

District Judge Pates sits at Crewe County Court