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Tenancy Deposits and the Deregulation Act 2015

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The Deregulation Act 2015 received royal assent on 26 March 2015 and the provisions directly applicable to tenancy deposits came into force on that day. With historical developments in mind, this article seeks to explain and simplify the changes brought about by the Act.

 

A brief history

 

The Housing Act 2004 (2004 Act)

The requirement on landlords of assured shorthold tenants to protect their tenants’ deposits under an authorised scheme was first introduced by the Housing Act 2004, though the relevant provisions did not come into force until 6 April 2007. The position at that time may be summarised as follows:

·    Section 213 of the 2004 Act required the landlord of an assured shorthold tenant to comply with the initial requirements by holding the deposit in an authorised scheme within ‘14 days’  of receipt. It also required the landlord to provide to the tenant prescribed information about the scheme within 14 days.

·      Section 214 made provision for an aggrieved tenant to apply to court for a remedy in the event of the landlord’s failure to comply with the initial requirements of an authorised scheme and/or for failing to provide to the tenant the prescribed information or that the tenant has been unable to obtain confirmation from the scheme administrator that the deposit is being held in accordance with the scheme.  In the event of breach by the landlord, the remedies available to the tenant include (i) an order against the person holding the deposit to repay it to the tenant or (ii) an order requiring that person to pay the deposit into an authorised scheme within 14 days of the order. In addition, the court ‘must’ order the landlord to pay to the applicant (usually the tenant) a sum of money equal to three times the amount of the deposit paid within 14 days of the order. The court therefore had no discretion on the amount of award. It had to be an amount equal to ‘three times the amount of the deposit.’       

·      Section 215 penalised landlords further by imposing restrictions on the service of a ‘section 21 notice’ seeking possession in the event of a landlord breaching the requirements of an authorised scheme or for failing to provide to the tenant the prescribed information. Specifically, this provision prevented a landlord from serving a section 21 notice seeking possession ‘at a time’ when (i) the deposit is not being held in accordance with an authorised scheme; or (ii) the initial requirements of such a scheme have not been complied with in relation to the deposit; or (iii) until such time as the prescribed information has been given to the tenant.

Unfortunately, these provisions of the 2004 Act did not cover certain eventualities. Among them were situations where the landlord complied with the requirements under section 213 but did not do so within the stipulated ‘14 day’ period, whether there was to be a financial sanction for late compliance and/or whether proceedings could be commenced after the tenancy has ended. There also remained doubt as to the validity of the section 21 notice in the event of late compliance. Inevitably, the Courts have had to grapple with some of these issues in a number of cases.

 

Case law under the 2004 Act

In Vision Enterprises Ltd v Tiensia [2010] EWCA Civ 1224 the Court of Appeal held that where the landlord had failed to comply with section 213(4) within the stipulated time, being within 14 days, but did so comply before the hearing of the claim, the financial penalty under 214(4) could not be imposed.

Likewise the Court of Appeal in Gladehurst Properties Ltd v Hashemi [2011] EWCA Civ 604 held that proceedings under section 214 could not be brought once the tenancy had come to an end. However, Sedley LJ in the Tiensia case was not convinced that this is what parliament had intended. In his dissenting judgment, His Lordship described the decision to have rendered the scheme a ‘dead letter’.

 

The Localism Act 2011 (2011 Act)

In a swift attempt to rectify the situation, parliament passed the 2011 Act. Section 184 therefore made certain amendments to the 2004 Act which came into force on 6 April 2012. The amendments made by the 2011 Act may be summarised as follows:

·     Section 213 of the 2004 Act remained as it was except that the time limit for protecting the deposit into an authorised scheme and for providing the tenant with the prescribed information was extended to ‘30 days’.

·     Section 214 was widened to make provision for a tenant to apply to court for  breaches by a landlord of s.213(3) for failure to protect the deposit with 30 days and s.213(6) for failure to provide the prescribed information within 30 days. It is noteworthy that, prior to these amendments, there was no remedy under this provision for late compliance by a landlord. These amendments thus appear to overrule the majority decision in the Tensia case. 

In addition, contrary to the decision in the Hashemi case, section 214 was amended to make provision for a tenant to apply to court under this provision even after the tenancy has ended.

In terms of the remedy available to a tenant, section 214 was amended to allow courts to exercise discretion on the amount of the award of ‘not less than the amount of the deposit and not more than three times the amount’.Previously, the court had no discretion on the amount of the award as it had to be an amount ‘equal to three times the amount of the deposit.’

·      Section 215 was widened to prevent the service of a section 21 notice seeking possession when the landlord breached s.213(3) by failing to protect the deposit within 30 days. Late compliance of s.213(3) is therefore a bar to the service of a section 21 notice. However, late compliance in providing a tenant with the prescribed information is not a bar to the service of a section 21 notice as long as there was compliance prior to the service of the notice.

Since late compliance with s.213(3) to protect the deposit within 30 days meant that a landlord in those circumstances could never seek possession under section 21, section 215 was amended to provide a way out for the landlord. In those circumstances, a landlord is able to seek possession under section 21 but only (i) where the deposit has been returned to the tenant in full or with such deductions by agreement; or (ii) an application to a County Court has been made under s.214(1) and the matter has been determined by a court, withdrawn or settled between the parties by agreement.   

Lloyd LJ helpfully referred to the changes brought in by the 2011 Act in Superstrike Ltd v Marino Rodrigues [2013] EWCA Civ 669. His Lordship had this to say:

“Under the original version of section 215, as construed in Vision Enterprises v Tensia, it was open to the landlord to comply with the requirement to have the deposit held in accordance with an authorised scheme, even though this was not done within the 14 days then stipulated. That seems not to be the case now, given the amendment to section 215(1)(b) made in 2012. I note that, as regards failure to provide the necessary information, under section 213(6), the sanction preventing service of a section 21 notice applies until the information is given, even if that is done late: see section 215(2) and its words: “until such time as section 213(6)(a) is complied with”. The time stipulation is in section 213(6)(b), so in that case the distinction is clearly deliberate: the landlord can retrieve the position, as regards that failure to comply, by complying late. The same does not appear to be the case in respect of failure to protect the deposit by an authorised scheme at all. Therefore it may be (I do not decide that it is so) that the only way in which the landlord can now escape from the provisions of section 215(1) is by returning the deposit to the tenant.”  (Para 42)

 

The current position

Last month, the government published its response to the consultation ‘Review of Property Conditions in the Private Rented Sector’. The government tabled an amendment to the Deregulation Bill in response to the Court of Appeal’s decision in the Superstrike case in which it ruled that where a landlord received a deposit for a fixed term tenancy before 6 April 2007 (at a time when there was no requirement to protect the deposit) and the fixed term ended on or after 6 April 2007, thereby giving birth to a statutory periodic tenancy and the landlord retained the deposit, the landlord was obliged to protect the deposit in an authorised scheme. The court ruled that in that situation the landlord was deemed to have received the deposit when the statutory periodic tenancy began. The government felt that “as the statutory time-limit for protection has long passed in such cases, these landlords are at risk of financial penalties and delayed possession proceedings as a result of the decision as they cannot comply with the requirements retrospectively.”

The amendments made by the Deregulation Act 2015 (the Act) may be summarised as follows:

·    Section 213 of the 2004 Act – no changes made. Accordingly, the requirement on landlords to protect the deposits received and to provide their tenants with the prescribed information within 30 days remains in force.

·       Section 214 has been amended to limit applications to court against landlords for breaches relating to deposits received “on or after 6 April 2007.” S.214 as amended by the 2011 Act remains in force in all other respects.

·       Section 215(1) has been amended to create it seems, a distinction between deposits paid “before, on or after 6 April 2007” and deposits paid “on or after 6 April 2007”. In the case of the former, late compliance with the requirement to protect deposit is not a bar to the service of a section 21 notice seeking possession whereas in the case of the latter, late compliance remains a bar, consistent with the 2011 Act amendments.     

·      Section 215A - Specifically in relation to deposits received before 6 April 2007, the Act has inserted a section 215A applying only to where (a) before 6 April 2007 a tenancy deposit was received; (b) on or after 6 April 2007 a statutory periodic tenancy arose; (c) the landlord held onto all or part of the deposit paid in connection with the tenancy; and (d) the landlord did not protect the deposit under s.213(3) within 30 days nor provided the tenant with the prescribed information under s.213(5) and (6). In these circumstances, if on the commencement date, namely 26 March 2015, the periodic tenancy is in existence and the landlord continues to hold all or part of the deposit in connection with the periodic tenancy, section 213 requirements to protect the deposit and to give the tenant prescribed information apply but within the time limit extended by 90 days beginning with 26 March 2015 or before the first day after 26 March 2015 on which a court decides an application or an appeal under section 214 or decides a possession claim or an appeal under section 21, if earlier. This new provision therefore directly tackles the difficulties faced by landlords as a result of the Superstrike case as identified in the government’s response to the consultation, by giving them up to three more months to comply.

In short, a landlord in this situation now has until 23 June 2015 to comply with the requirements to protect the deposit into an authorised scheme and to provide the tenant with the prescribed information or until the first day on which a court decides a claim under section 214 or section 21 possession claim or an appeal under them, if that were to take place earlier, namely within this 90 day period.

On the other hand, if on 26March 2015 being the commencement date, the periodic tenancy is no longer in existence and no deposit continues to be held in connection with the periodic tenancy, the requirements of s.213 are deemed to have been complied with by the landlord. 

·      Section 215B – In relation to deposits received on or after 6 April 2007, the Act has inserted a section 215B applying only to where (a) on or after 6 April 2007 a tenancy deposit has been received; (b) the landlord has complied with the initial requirements (ignoring any time limits); (c) the landlord has complied with the requirement to provide the tenant with prescribed information in relation to the deposit for the original tenancy (ignoring any deemed compliance under s.215A(4); (d) a new shorthold tenancy comes into being after the end of the original tenancy; or (e) the new tenancy replaces the original tenancy; and (f) the deposit continues to be held in connection with the new tenancy, in accordance with the authorised scheme as when section 213(5) and (6)(a) were last complied with. In these circumstances, there is no requirement on the landlord to protect the tenancy deposit again under s.213(3) or to provide the tenant with prescribed information under (5) and (6) because in such a situation, the requirements of section 213 are deemed to have been complied with.  

The amendments made by the Act are therefore to be welcomed with open arms, particularly by landlords. It provides a way out for those landlords landed in difficulties by the decision in the Superstrike case. However, exactly how the courts will interpret and apply these changes to individual cases remains to be seen. In particular, it would be interesting to see how the courts distinguish between the new section 215(1) ‘deposits paid before, on or after 6 April 2007’ and (1A) ‘deposits paid on or after 6 April 2007.’

 

 

The comments contained in this article are made on a non-specific basis and for general information only and therefore the writer does not assume responsibility for the accuracy of any particular statement. In the case of specific problems, the reader is recommended to seek specific legal advice.

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Saiful Islam is a practising Barrister in the City of London

Comments

  • Guest
    Smithc778 Saturday, 12 December 2015

    Excellent post. I was checking continuously this blog and I'm impressed! Extremely useful information specially the last part afkfbedddkagfaed

  • Guest
    Vivek Wednesday, 04 May 2016

    The government felt that “as the statutory time-limit for protection has long passed in such cases, these landlords are at risk of financial penalties and delayed possession proceedings as a result of the decision as they cannot comply with the requirements retrospectively.Justice very good stuff, appreciate it.

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Guest Wednesday, 13 December 2017