With thanks to Christopher Stockdale at John Barkers of Grimsby, we have had news of another Shorthold Assured Tenancy deposit case, Piggott v Slaven, Great Grimsby County Court 23 February 2009.
This one is of particular interest as the issue at stake was whether there was deposit at all, or just an advance payment of rent. There are a couple of side issues – one on transfer of deposit from one tenancy to another and the other on technical validity of notice. This is a County Court decision by a District Judge, so no precedents set, but the logic on the deposit question looks good to me.
The facts were that Ms Slaven had signed a six months AST on 14 Feb 08 at a weekly rent of £105 to be paid weekly in advance. On 24 June 08 the landlord, Mr Piggott served notice under s.21 (stated as s.21(1)(b)) with possession required on 27 August. An accelerated possession claim was issued on 9 September.
Before taking this tenancy, Ms Slaven was the tenant of another property at which her landlord was also Mr Piggott. A deposit of £600 was paid by Ms Slaven to Mr Piggott for that tenancy in April 2005. Ms Slaven defended on the basis that this £600 had been retained by Mr Piggott as deposit for the tenancy of the new property (there being no interruption between the tenancies) and that this deposit has not been put in a scheme, therefore the s.21 notice was invalid, or of no effect. Ms Slaven claimed the 3 x deposit penalty.
Mr Piggott said that the money was taken as advance rent and was therefore not a deposit so the HA 2004 provisions did not apply and the s.21 notice was valid.
At hearing, there was dispute over the amount of money and whether or not it was a deposit. The DJ found that there had been an amount of £525 taken by Mr Piggott, which had been described as advance rent.
On the deposit issue, the DJ noted that s.212(8) HA 2004 describes a deposit as meaning:
Any money intended to be held (by the landlord or otherwise) as security for –
(a) the performance of any obligations of the tenant, or
(b) the discharge of any liability of his arising under or in connection with the tenancy.
On ‘intended’ there is no indication in HA 2004 whether this is an objective or subjective test. But in view of the policy aim of protecting the tenant, it was surely not intended that the LL could avoid the scheme simply by saying that he did not intend to hold the money as security.
In the present case, any money over the first week’s rent was clearly being held as security against any potential future breach of rent liability, or other condition, by Mr Piggott, as it was not set off against the first five weeks rent liability. It was therefore, objectively, intended to be a security and was a deposit.
The deposit had not been put in a scheme as per s.213(1) and (6) HA 2004, and, by s.215(1) the s.21 Notice was not valid. 3 x deposit payment ordered and the return or protection of the deposit.
Arguably then, any money from the tenant held by the landlord over and above the immediate payments of rent due is construable as a deposit, where the landlord has not clearly indicated that it will not be used in relation to any breach of tenancy condition or tenant liability.
It is interesting to note that there is no issue at all about the deposit being ‘new’ and caught by the scheme, although no money had physically been given to Mr Piggott by Ms Slaven at or around the beginning of the tenancy (in fact he had returned £75 to her at the time). However, as this was a different property, it is not quite the same situation as a ‘renewed’ tenancy of the same property.
There was also an issue over the validity of the s.21 notice, which was in form 21(1)(b) when, it was alleged, it should have been in form 21(4). The DJ decided there was no need to find on this, but ‘would have taken a lot of persuading’ that the technical fault was important, when ‘the intention of the party serving the notice was clear to the party receiving it’. Call me an old pedant, but the technical requirements are just that and shouldn’t be waved away on the basis that ‘everyone knew what it meant’. But, as ever, one has to convince the particular DJ on the day.
[For all tenancy deposit case posts click here]
Interesting post – I have commentated on it on my blog at http://landlordlaw.blogspot.com/. Do you think this threatens the practice of two months rent in advance instead of one month and a deposit, beloved of many landlords?
BTW I like the new site design!
If the ‘two months in advance’ isn’t used in whole to cover the first two months rent, then yes. Anything held over rent due could fall under this. Although perhaps if it was for a specific purpose (last month’s rent, say) and could not be used for anything else, there may be an argument.
I’ve been pondering a case like this recently, and it seems that even if it is earmarked for last month’s rent, would it not still clearly be intended to grant the LL an added measure of leverage, or, in the HA2004’s words, “security” over the tenant? Imagine that the tenant is required to pay the first 3 months and the last 3 months’ rent of a year’s lease upon moving in, and the intermediate 6 months’ rent monthly in advance. After the first three months of occupation have passed, liability for rent will start accruing on a monthly basis from the fourth month onward, despite the landlord still holding the final three months’ rent on credit for when they pass.
This means that if no other payments are made, by the 5th month, then two months’ of liabilities and arrears will have accrued, and the landlord will gain the right to ground 8 possession, with the added “security” not enjoyed by other more conventional landlords, of not having to chase the tenants for the arrears in small claims, because they would presumably simply offset against the three months’ rent held on credit. I don’t know if the common law right of setting off is applicable here, or to what extent there is any overlap, but if there was, then it might be said to render the HA2004 definition superfluous, because the implication would be that ANY balance held on credit by the landlord including first six months of rent paid up front could be a form of security against other obligations and liabilities. In any event, the statutory regime seems to be for landlords to be able to take at maximum 5 weeks worth of such security, which is not enough to the period of non-payment necessary to gain possession rights under ground 8, so the LL is still inevitably exposed to some risk, which is arguably an imposition by Parliament’s regime.
I can see the opposing argument of equating last months’ rent with first months’ rent (the latter of which is clearly okay), and how it could also be held, but it really seems to me like clearly a way to gain added security against potential breaches of tenants skipping out on their last months’ rent thinking that they can’t be chased for it because it can just be deducted from the deposit anyway, while getting around the statutory limits and protection requirements of HA2004 & TFA2019. The amount of this security was clearly limited by TFA2019, and clearly required to be subject to protection by HA2004, but unfortunately most blogs on the general topic, as detailed and interesting as they often are, seem to treat the specific incarnation of “last months rent” as a peripheral and speculative side note, and alas my search for clear and conclusive answers in case law as to the status of the seemingly fuzzy “last months’ rent in advance” (in addition to any scheme-protected “deposit”) continues…
Even this case, as you said, isn’t binding precedent, but it is something…
If a payment is specifically earmarked for a specific month’s rent (month six, for example) it is not security for performance, it is performance. If that payment is used for anything else by the landlord, then it is being treated as security.
If it clearly is just a matter of the timing of payment rather than a security, then that’s probably OK. 2 months in advance would mean no payment in the last 2 months of the tenancy.
But that would make it essentially useless as a deposit against tenant damage.
Exactly, advance of rent against specified periods (say month 1 and month 6) is probably OK, but could ONLY be used for EXACTLY that purpose. If used against any other default on rent due or is potentially being held against some putative default of rent, let alone anything else in breach of tenant’s conditions (damage etc.) = deposit.
Why do you say this? And what if, as in a case that I’ve been looking at, it is said to be taken for (say) month 1 and month 6, but when payment for month 2 wasn’t made, the LL actually did apply the balance held ostensibly in respect of month 6 to month 2 and then proceeded to prompt for rents after month 3 fell due. Would you think that in this case it would be a deposit?
In any event, my honest-to-god-completely-candid-and-unloaded reading of the word “any” in S212(8) (a) and (b) is that it ought naturally to mean the same as if it said “any one or more.” That is to say, if LL A takes a deposit that is only to be used for any eventual physical damage to furniture, then this engages S212(8), and if LL B takes a deposit that is only to be used for setting off unpaid rent, but not under any circumstances for damaged furniture or any other purpose, then this also engages S212: it is not seemingly necessary, to my mind, that any one given deposit against which the S212(8) definition is being weighed can be used by the LL as security for any and every obligation or liability that the tenant might default on in connection with the tenancy. Does that seem quite wide of the mark to you?
Are you quite confident about this, Francis? When a tenant signs into a fixed term, they are assuming the obligation to uphold the contract for the duration of the fixed term. A common concern of LLs is tenants either leaving early (in breach of their contract), or skipping out on last month(s)'(s) rent, on the ground that LL can simply dip into their deposit, so there’s no harm and no foul. There’s little that landlords can do about this, because by the time the arrears will have accrued into anything consequential for section 8, the tenant is usually gone already anyway, and then the LL is left without any security deposit left over for any damages that might have been caused by the tenant to the property and fixtures etc. But, perhaps unfortunately for LLs, that is just the way it is, or apparently how Parliament intended it to be. Under HA2004, they are required to protect any sum taken as security against tenants’ breach of contractual obligations, and under TFA2019, this is to be capped at 5 weeks’ rent. Doesn’t seem quite a bit like last months’ rent up front is a way of LLs gaining extra indemnity against potential loss from defaulting by tenants on tenancy obligations, while getting around the requirements imposed by Parliament in both mentioned acts, including ones intended to afford important protections to the tenant?
The problem and fuzzy bit of my argument is that it remains to be established why last months’ rent is fundamentally different from the quite common practice of requiring some number of first months’ rent initially in the case of a tenant who has no LL references, which is apparently quite clearly thought to be okay as a way of compensating for the lack of reassurance as to the credibility of the tenant upon signing of the lease in the absence of employer or landlord references. I suppose the turning question would then be: does this need to reassure oneself as to the good credit of the tenant extend so far as to justify holding extra X months’ leverage against the tenant so that they’re constantly closer to liability for eviction throughout the entire duration of the tenancy, which arguably inches toward infringing on housing protections that implicate articles of the Human Rights Act, so this should arguably not be done very lightly. Perhaps the method to be used for distinguishing first months’ rent to last months’ rent is that the decreased affordability is an unavoidable consequence of, that can thus be balanced with, the need of the landlord to reassure themselves as to the good creditworthiness of the tenant before entering into a contract with them, and assuming the risks that that entails. But the added leverage taken against the tenant, and the resulting increased precariousness of the tenant’s tenure in their very home (arguably straining, if not breaching, their rights in the human rights act which arguably ought only to be constrained/limited by the explicit statutory regime carefully considered and set out by Parliament), is not so unavoidable as a result of satisfying in some way this need for added reassurance in the face of a tenant lacking employer or landlord references.
How does this compute with you?
As per my reply above, an amount that is specified to be for a particular month’s rent is not a security for performance, it is performance. So it is not a deposit (unless the landlord takes the money and applies it for another use – damage or missed rent for another month.)
I would be interested to know what costs orders are being made in S213 claims. In view of the fact the HMCS guidance is that these claims must be issued as Part 8 claims, and as Part 8 claims are treated as multi-track, what amounts are being awarded against the losing party? It will be a risky business for a tenant to pursue a S213 claim if the result could be a costs order against them for hundreds of pounds.
I’m not sure, Suzanne. I have heard of a few claims that have been lost following late (post issue) compliance by the landlord where the claimant tenant has still been awarded their costs of issue and no costs awarded against them, presumably on the basis that the claim was validly issued. But I take it that this is at the discretion of the individual court.
Still, I think that here is a good chance this line would be followed, at least where there was post issue compliance by the landlord. If the tenant has issued on spurious grounds, though, or if the facts are disputed, the claim will most likely be knocked out of part 8 and re-allocated – probably to to Small Claims if under £5K, so the costs risk would be limited.
I’ve always wondered what is the basis/rationale for designating these to the Part 8 procedure when they would seem to very infrequently cross the quantum threshold for small claims. Yet it is reassuring to see the comment below suggest that the costs would usually be moot due to reallocation to small claims.
I’ve just been directed to this as providing some sort of general precedent, but it doesn’t.
The point here was that the agreement was for a rent paid weekly in advance, so anything extra held was treated as a deposit. But if the ASTA clearly says that rent is to be paid two months in advance, then the situation is different and there is nothing being held as a deposit.
Peter, you were directed to this as a general precedent for what?
You are right on the two months in advance, but only as long as no money is held over, so two months rent in advance means the next rent payment is in two months time. If however, the next rent payment is after one month, then there is a month worth of money being held over by the LL. Absent a specified and limited use for this payment (say for rent for month 6), it is likely to be construed as a deposit.
But this isn’t a precedent, of course, it is a county court case, so not binding. The logic is clear though and I would be surprised if it wasn’t adopted by other courts.
I charge 2 month’s rent in advance. I don’t charge a deposit as I can’t be bothered with the hassle of registering it. I specify that one month’s rent is for the present month. The other month’s rent is for the last month of the tenancy. Therefore, I don’t expect the tenant to pay any rent at the start of the last month – as he has already paid it.
This arrangement protects me against the tenant leaving with rent unpaid, but not against tenant damage. Since my tenants never do significant damage and since I’ve only once in 30 years letting retained part of a deposit (and that was by agreement), this arrangement works satisfactorily for me.