Deposit scheme – a new wheeze

So, I gave a talk on the deposit scheme post Localism Act on Tuesday morning, then surface to immediately find word of a new wheeze being tried by landlords. Just how quickly can one become outdated?

The Housing Act 2004 as amended by the Localism Act 2011 and in force from 6 April 2012 appears to say that if a deposit has not been protected within 30 days (or by 7 May 2012 for deposits taken before 6 April 2012), then no section 21 notice may be served unless the deposit (with agreed deductions) has been returned to the tenant or dealt with in s.214 proceedings by court order.

The new wheeze, being used by landlords who failed to protect, served a s.21 and are now seeking to rely on it, goes something like this…

The relevant parts of s.215 are:

s.215

(1) [Subject to subsection (2A),] if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when—
(a) the deposit is not being held in accordance with an authorised scheme, or
(b) section 213(3) has not been complied with in relation to the deposit.

[…]

(2A) Subsections (1) and (2) do not apply in a case where—
(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or
(b) an application to a county court has been made under section 214(1) and has been determined by the court, withdrawn or settled by agreement between the parties.

The argument being that (2A)(a) means that once the deposit has been returned to the tenant, (1) does not apply, with effectively retrospective effect, so any s.21 previously served is valid once the deposit has been returned, and the notice can be relied on in possession proceedings. (Accelerated proceedings couldn’t be issued in the meantime, as the landlord must declare the deposit protected or no deposit taken. Further, there would be the added complication of whether the s.21 was valid – as in served – at the date of issue of the claim).

Now, it has to be said that (2A) could have been more precisely worded – ‘ceases to have effect’, say, or even just ‘do not apply in a case once..’. But at the same time for a clause to have retrospective effect, one would expect to see that clearly specified. I would put myself on the ‘no retrospective effect’ side of the argument. For the issue of whether the tenant had in fact been served with a s.21 to turn on whether the landlord had at some later point returned an unprotected deposit to the tenant, strikes me as going against all certainty of notice.

But the fact that the opposite is arguable will no doubt mean some landlords succeeding on this point in the County Court.

I have an awful suspicion that this one will be destined for a higher court, just when we thought deposit scheme issues had been more or less sorted out.

m4s0n501
Posted in Assured Shorthold tenancy, Deposits, FLW article, Housing law - All and tagged , .

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +

30 Comments

  1. Unless there is a judge wanting to stick the boot into a tenant my guess would be that a judge would find it repugnant that a tenant relying on the notice he received not being a valid section 21 notice on the basis of s.215(1) and then finding out only a few hours before it expires that the landlord has “returned” the deposit and, immediately following expiration, issued an accelerated possession claim so that the tenant could have an order for possession against him within a few weeks of the notice becoming valid.

    Another argument ripe for higher court determination is the question of what has to be done to “return” the deposit to the tenant per s.215(2A)(a). Commonsense and Coltrane v Day suggests that it would be enough for the landlord to give a cheque for the full amount to the tenant whether or not the tenant deposits it and that the date of such giving (if during banking hours) would the date on which s.215(2A)(a) kicks in. What if the tenant argues that bank transfer or cash were the only acceptable form of payment as the cheque was likely to bounce (perhaps there have been previous financial defaults by the landlord) and so was not going to go to the trouble of depositing it and there is nothing in the tenancy agreement expressly stating that a cheque from the landlord is an agreed method of repayment of the deposit?

    • JAC, your first objection is where I was going. My sense is that you end up with a s.21 notice arguably void for lack of certainty of period and/or expiry date. T entitled to believe notice is void at time of service, as indeed it would have been, so I don’t see how this can retrospectively be turned into two clear months’ notice.

      I am less troubled about the means of ‘return’ of the deposit. I’m afraid I don’t see that T is in a position to demand return by any particular means, no matter how reasonably. If a cheque bounces, then deposit not returned, although granted that could cause entertainment if a s.21 served in the meantime.

  2. (1) applied at the time of service, so the notice is invalid.

    What is the basis for claiming that the wording of (2A) may have retrospective effect?

    Assuming that the notice might indeed become valid once the deposit has been refunded, surely the tenant would have a good point in defending that the notice must be valid for the notice period to run.
    That is, that the notice period only starts once the notice becomes valid.
    In such case, the landlord might start court proceedings too soon, in addition the expiry date on the notice may also turns out to be incorrect, making the notice invalid again.

    • s.215(2A) does not say s.215(1) & (2) – the s.21 ban – ‘ceases to have effect’ when the deposit is returned. It says they ‘do not apply’ where (not ‘when’) the deposit has been returned. Granted there is nothing to say that this would apply retrospectively, but it is possible to interpret that phrasing as meaning s.215(1) & (2) have no application to the case where the deposit has been returned, including in the past.

      I agree on the notice period issue.

  3. Is it correct that the tenant can refuse to accept repayment (by whatever means) offered by the landlord under 2A(a) and therefore avoid service of section 21 notice? The court will presumably want to know why the tenant is refusing an offer of full repayment. The tenant’s justification for refusing is that the protection schemes offer a costs-free dispute resolution service as an alternative to the county court (with its associated costs – even if only the issue fee etc). It is therefore in the tenant’s legitimate interest to ask that the deposit not be returned to him but protected in a scheme instead.
    If the landlord then protected the deposit is it correct that he would still not be able to serve a section 21 notice if that protection took place more than 30 days after receipt – because it was protected either too late to be in accordance with a scheme or too late to comply with section 213(3)?
    A county county court judge might balk at the idea of ASTs being effectively turned into assured tenancies because of the tenant’s refusal to accept return of the deposit but is that not answered by the tenant’s legitimate reason for refusing repayment? Is it worth a go….?

    • The hole in that cunning ruse is that if the deposit is returned (in full) there is no need of a dispute resolution service.

      And yes, no s.21 may be served if deposit protected and prescribed information not given within the 30 days of receipt deadline.

      However, if it is just the prescribed information not given in the 30 days, that can be remedied for the purposes of serving a s.21 at any time, just by giving the information to the tenant. Would still leave the landlord open to a s.214 claim though.

      • Sorry to labour the point, but on the question of the need of a dispute resolution service –

        Is there anything to stop a landlord returning the deposit in full simply in order to serve a section 21 notice, serving such a notice (and then issuing proceedings) and also demanding a sum in respect of alleged damage/dilapidations, and then suing for that amount in the county court (which the tenant would incur costs defending)? My suggested answer to that (rhetorical) question is “no”. And if that is correct then the tenant has a legitimate interest in refusing repayment and requesting that the deposit be protected, albeit late, in order to protect himself from that scenario. Does that save the cunning ruse?

        • My view – too distant. Of course the landlord could. The landlord could also ask for a fresh deposit, I think (which would of course have to be protected). Or the tenant could propose fresh deposit. But any alleged dilaps would probably be a small claim anyway.

          Look at it this way. What if the tenancy had not required a deposit in the first place. Could the tenant viably argue that there must be a deposit so T would get the benefit of the arbitration service? No. But T is in the same position here if deposit returned.

          • I quite agree with NL’s points.

            Even though the tenant would probably lose with his argument, I suppose it is possible that if a tenant were to say something like “well he did not return the deposit because I reasonably refused to deposit the cheque received on the basis that I had good cause to think it would not clear” in support of a defence based on the landlord not being able to serve a section 21 notice under s.215(1) of the 2004 Act, then this might be enough to take the claim out of the accelerated possession procedure and for the court to list a preliminary hearing date.

            In turn, this could delay the time before a landlord gets back possession even though the tenant will, almost certainly, not make out his defence. Thus the tenant would gain an extra couple of months (or more) in the property. There would be a punishment in costs ordered by the court against the tenant I imagine but if the tenant clears off and cannot be found or is otherwise not worth pursuing this is likely to be of little benefit to the landlord.

          • I respectfully (and somewhat hesitantly) disagree with the points in your second paragraph…

            A tenancy that did not require a deposit in the first place is not a good comparator for one that did, whether or not it is subsequently returned. You are right that in the former case T could not viably argue that there should be a deposit in order that he gets the benefit of the arbitration service. But in the latter case (where a deposit is required) T could viably argue that he entered into the contract assuming that the deposit would be protected in an authorised scheme, thereby giving him the benefits of the cost-free arbitration service. He could further viably argue (I think) that had there been no deposit demanded in the first place he would have negotiated a lower rent in order to reflect his increased risk of exposure to costs in the only other dispute resolution service open to him – the county court.

            The tenant who pays no deposit is therefore not in a comparable position to one to whom a deposit has been repaid. The latter, I would suggest, should be entitled to refuse repayment of the deposit in order to gain the protection from costs that was part of the bargain that he negotiated with the landlord at the agreed rent. Had he known that the deposit was not going to be protected he could argue that he would have sought to negotiate a lower rent to take into account the costs risk he was taking on by it not being protected.

            • Trevor, they have got the deposit back. And I think the lower rent argument is a non starter. No deposit would usually be an argument for a higher rent, not a lower one.

  4. am i missing the point (‘again?’ asks nl…)
    the word in s215(1) is ‘given’.

    on the cheque point i would say that until cleared there has been no return i accordance with the usual rule on cheques and funds.

    • Don’t think the word in s215(1) alters the argument, if s.215(1) retrospectively ‘doesn’t apply in the case’.

      On the cheque issue, I haven’t had time to dig into the current case law on that, but it is certainly the case that a cheque given on the morning of a hearing counted as payment of rent arrears…

  5. Hi my query is that my deposit was not protected when section 21 was served. Section 21 ended 18th march and was given full deposit back on 21st in cash. Is the section 21 now legal ? As they are now proceeding to possession order ?

    • My view is that is the deposit was not protected (or already returned) when the s.21 notice was supposedly served, the notice is invalid.

      The argument about ‘retrospectively’ validating the s.21 by returning the deposit hasn’t been tested in a court judgment that I know of. And my sense is it would lose. So the possession claim in your situation is very likely to be in trouble. You certainly have a defence that the s.21 was not valid when served.

  6. Hi, does a landlord have to return a deposit in full if it wasn’t protected within 30 days of receipt in order to serve a valid s.21 notice or could he subsequently protect it and issue a new and now valid notice? Many thanks

    • You are commenting on an old post. After April 2012, if the deposit was not protected within 30 days of receipt, it has to be returned ‘with agreed deductions’ before a s.21 can be served. But protecting it does not stop the landlord being liable for a claim for 1 to 3 times the deposit for failing to protect in 30 days.

  7. Hi, thanks for your reply. Our landlord’s first s21 notice was invalid because they had not protected our deposit since 2007. The deposit was protected in April 2014 and a new noticed served, however it would seem that the new notice is still not valid as they have not returned the deposit in full ‘with agreed’ deductions. Is my understanding correct? Many thanks

    • Yes, if protected after 6 May 2012. S.215(1) and s.215(2A) Housing Act 2004 as amended. Only other exception is where the tenant has brought a s.214 claim and the Court has dealt with it, or it has been settled or withdrawn.

  8. A couple of things- section 213 specifies 14 days for the initial requirements- not 30 days- where is the authority for 30 days? Also -does that mean that even if a landlord protects a deposit after serving a section 21 notice -that the notice remains invalid- that they have to return the deposit before the notice is valid? So there is essentially no point in a landlord now protecting a deposit late in the day?

    • You are looking at the HA 2004 as it was before being amended by the Localism Act 2011. You need the amended version, effective from April 2012

      And yes, there is no point in late protection after the 30 days, as of April 2012. LL still liable for a s.214 claim and can’t serve s.21.

  9. Can a landlord try to claim for property damage when the deposit has already been returned (and check-out has not initially identified any issues) and tenant has left?

  10. Can a tenant refuse to accept the deposit back if the landlord is serving s21 after having protected the deposite late (after 30 days)?

  11. The section is postulated on agreement . I do not agree that a LL can simply return a deposit

    1 If the t/Ag requires a deposit and it has been paid it requires consensual variation of the tenancy for a deposit to cease to be payable and therefore for the T to accept repayment

    2 A tenant may have other good reasons why they wish the deposit to remain in the scheme – impecuniousity so they fear they could not otherwise meet the obligations at the end of the tenancy , other creditors who they would have to pay with this money , an abusive partner who might drink it away etc

    • I diasagree, I’m afraid. The only agreement referred to is on the amount of deductions, and the wording is simply ‘the deposit has been returned to the tenant’, not that the parties have agreed the deposit is to be returned’. While there may be many reasons why the tenant may wish the deposit to remain with the landlord, given that there is no requirement for there to be a deposit, it is hard to see how that can determine whether the landlord can return the deposit.

      As the tenant could avoid a s.21 notice in perpetuity simply by refusing to accept the deposit back, I can’t see such a refusal standing up in court, no matter what the tenant’s reasons.

      S.215:
      [(2A) Subsections (1) and (2) do not apply in a case where—

      (a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or

      (b) an application to a county court [the county court] has been made under section 214(1) and has been determined by the court, withdrawn or settled by agreement between the parties.]

  12. The contract of tenancy requires a deposit – that is why one is paid – in the absence of a variation of that contract then it still requires one. It is a pre-condition to the LL being able to return the deposit that the contract has been varied otherwise how can he return it ? albeit that if a tenant accepts the deposit back it might arguably be treated as varied by conduct- but if the tenant stands on the contract how can they be forced to accept the return of the deposit ?

    Bad drafting again but I suggest it is much less straightforward than you suggest .

    Consider the second limb . if you adopt a literal approach a LL could agree a settlement requiring him to repay the deposit then not pay it after all but still assert he could serve a S21 notice .

  13. Yes but the HA 2004 is built on the tenancy agreement – without the agreement and therefore payment of the deposit the scheme does not bite .

    I do not believe that HA 2004 was intended to allow LL’s to vary tenancy agreements unilaterally simply because it suits them . The tenant may refuse to vary . The fact this may make it difficult for the LL to recover possession is the LLs fault – he should have complied with the HA 2004 in the first place

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