Better late than never says Court of Appeal in ruling on tenancy deposits

Article

24 November, 2010

In November 2010 the Court of Appeal gave its judgment in the combined cases of Tiensia v Vision Enterprises Ltd (T/A Universal Estates): Honeysuckle Properties v Fletcher & Others [2010] EWCA Civ 1224. These two appeals were heard together as they both related to the same issue, namely the operation of the rules relating to tenancy deposit schemes under the Housing Act 2004.

Section 213 of the 2004 Act imposes a number of obligations upon a landlord who receives a tenancy deposit: to comply with the 'initial requirements' of an authorised tenancy deposit scheme and to do this within 14 days of receipt of the deposit, and also to give the tenant prescribed information relating to this protection and to do this within the same 14 day period. Section 214 required the court to impose sanctions against a landlord who fails to comply which included paying the tenant a sum equal to three times the amount of the deposit. At issue in this case were the circumstances in which the sanctions were to be imposed. The ruling will consequently be of interest to all private landlords and should be noted accordingly.

The Facts

In the Tiensia appeal, the landlord (U) had brought a claim for possession of the property and arrears of rent against the tenant (T), who made a counterclaim under section 214 of the 2004 Act. The claim was issued in August 2008 and the counterclaim was made in October 2008. This counterclaim was successful as in February 2009, U was ordered to pay a sum equal to three times the deposit to T. U appealed against this decision and this appeal was allowed. T then appealed against this second decision.

In the Honeysuckle appeal, the landlord (H) brought a claim for arrears of rent against its three tenants (F) who also made a counterclaim under section 214 of the 2004 Act. This was heard in January 2009 and H was ordered to pay a sum equal to three times the deposit to F. H appealed against this decision and the case was transferred to the Court of Appeal.

For both cases, the landlords had failed to comply with their section 213 obligations when proceedings had been issued, but had done so afterwards. In each, the first instance Judge had held that this late compliance did not prevent the section 214 sanctions from being imposed against them.

The landlords' main argument was that section 214 did not concentrate on the 14 day requirement and instead focused completely upon whether by the time of the hearing of the tenant's application for the section 214 sanctions to be imposed, the landlord was still in breach of their obligations. The landlords submitted that if a landlord was in breach, the court must impose the sanctions. If the landlord was not in breach, the court was not able to impose the sanctions.

The argument forwarded by the tenants was that if a landlord failed to perform their duties under section 213 of the 2004 Act with the 14 day time period allowed, they could not recover from this situation and would not be able to argue against the sanctions being imposed upon them.

The Court of Appeal's decision

By a majority, the Court of Appeal found in favour of the landlords, thereby dismissing T's appeal and allowing H's appeal.

It was held that the natural interpretation of the phrase 'the initial requirements' was that it did not include any requirement imposed by a particular scheme as to the time within which the landlord must secure the deposit. The pre-condition of a tenant's application to the court under section 214 was not a failure by the landlord to comply with the 'initial requirements' or the notification thereof to the tenant within the 14 day period. Instead, it was the failure to comply with either of those obligations at all. Therefore, it was held that if a landlord was late in complying with their duties under section 213, but they do comply before any section 214 proceedings were brought by the tenant, then the tenant would have no cause of action and any claim brought would be dismissed.

The second issue addressed by the Court of Appeal was whether the landlord had until the hearing of the tenant's section 214 application to comply with their own section 213 obligations. The court held that the date of the hearing was indeed the relevant date. It was said that there was nothing in the legislation which indicated that any other point should be used and that the objective of the legislation was not the punishment of landlords, but instead the achieving of proper protection of tenants' deposits. Therefore, the legislation should not be interpreted in a manner that encouraged the "ambushing" of tenants who had grounds for believing that the landlord has not complied with their section 213 obligations. It was said that a tenant therefore ought to write a letter before claim to the landlord to give them the landlord an opportunity to remedy the situation.

Summary

Whilst the decision in this case has provided clarity to this area of law, it should be noted that it was reached by way of a majority decision, with Sedley LJ providing a dissenting judgment. Therefore, there may be a further appeal to the Supreme Court in relation to this matter. In any event, landlords should take note of the decision of the Court of Appeal and ensure that they meet all their obligations in relation to tenancy deposits.

For more information and assistance on these issues, please contact the Housing Department at Forbes Solicitors on 01772 220022 or email Stuart Penswick.

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