A recent blog post on the PainSmith blog illustrates a potentially nasty trap for letting agents (and useful alternative target for tenants) in the tenancy deposit protection system of the Housing Act 2004.
According to PainSmith a let-only agent received a deposit from the tenant and passed it on to the landlord who failed to register the deposit within the 14 day deadline.
The tenant has now brought proceedings for 3 times the deposit against the agent as well as the landlord, arguing that s.212(9)(a) of the Housing Act 2004 defines “landlord” to include persons acting on a landlord’s behalf and therefore the penalties in s.214 of the act apply to the letting agent as well as to the landlord.
I have always thought this argument must be right. Indeed it goes a little further than that.
S.213(1) requires that when a deposit is paid to “a person”, it must, from the time that it is received be dealt with in accordance with an authorised scheme. The “person” could be anyone (as in “leave it with the lady next door dearie”) and the date of receipt starts the 14 days ticking.
2.212(9)(a) is quite clear. It states:
references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies
This would appear to mean that the duty to give information to the tenant (and any “relevant person” such as a relative paying the deposit on behalf of the tenant) under s.213(5) also falls on the letting agent. As well as implying (as the tenant in the case reported by PainSmith contends) that a letting agent can be ordered to pay three times the deposit as a penalty under s.214(4).
That view is buttressed by the fact that s.214(3) permits the court to order the “person who appears to the court to be holding the deposit” to repay it to the tenant – that person need not be the respondent to the application nor a landlord or letting agent. The scheme is clearly intended to permit the courts to do actual rather than merely formal justice.
Finally if I am right then the likelihood is that letting agents will insist that they take charge of ensuring that any deposits paid to them are held in accordance with one of the approved schemes. That can only be a good thing. It is hard to see why a landlord would have a legitimate reason for wanting to prevent an agent from doing so.
Thus, the long run effect might be to put letting agents in a stronger position when dealing with landlords, to the benefit of tenants and letting agents both. Of course in the short run this is not good news for any letting agents who have left responsibility for the deposit with the landlord and legal uncertainty is a bad thing.
For tenants, the lesson is that if you paid your deposit to a letting agent you may have another target for complaint if the deposit is not properly protected.
[For all tenancy deposit case posts click here]
Thanks for the link.
Inevitably I am going to disagree and say that my view is that the agent is not liable. The less sophistacated argument is perhaps that the mischief that the statute aimed to prevent was that of a landlord failing to register the deposit. The statute did not intend to permit landlords to, in effect, hide behind and agent who had only acted for them in finding a tenant.
A more sophisticated argument is twofold. One is that the agent here is not holding the deposit so they should not be penalised on that ground. More usefully is the fact that the agent was not acting for the landlord at the time the claim was made. The agents time of action weas limited in scope and therefore only related to the period from when the property was first marketed until the tenant signed the tenancy agreement. The agent was specifically not acting for the landlord in relation to the deposit.
Anyway I guess we will see how things go!
I agree with Francis I am afraid. I have always taken the view that it is the person who the deposit is paid to who is responsible for ensuring that it is dealt with in accordance with the rules.
Looking at it from the tenants point of view this can only be right. He should be entitled to expect that the person he actually paid the money over to, has some responsibility for ensuring that it is dealt with properly.
But we will have to see what the courts say.
I’d have to agree with Francis as well. The mischief the statute is aimed to prevent is surely a failure to protect the deposit, rather than specifically the landlord’s failure, so anyone receiving it on behalf of the landlord would putatively be caught.
If, as here, the agent has a contractural duty to the landlord to pass the deposit to him or her, then wouldn’t the agent have the remedy of a Part 20 claim against the landlord?
I accept these points and have advised agents in line with them from the start but I note that the DCLG in their guidance on this point state that it is not the agents responsibility. However, the explanatory notes to some of the SIs say the opposite…
A worrying issue, whoever is right!!
I’m a little curious why the Agent is being sued. Is the Landlord impecunious, or is it a tactic by Claimant to force a settlement?
Simon
One (small) point in favour of David’s argument is that a reasonably common arrangement used to be that the agent took the deposit as stakeholder. In such a situation they were not acting as the landlord’s agent.
That would still engage s.231(1) – for good policy reasons. Anyone who receives a deposit for whatever reason must comply with the rules.
But it might not engage s.212(9)(a).
If that is the argument, what sanction for failure to comply with s.231(1) for a stakeholder?
It’s not necessarily just lettings agents that are vulnerable in this respect. I’m a landlord, and take responsibility for lodging my tenant’s deposits with the DPS myself. My lettings agents collect the deposits and first months rent from new tenants, take their commissions, and usually pass what’s left of this on to me with sufficient time to meet the 14 day DPS deadline. However, at present I’m still owed the deposit given by one new tenant to the agent over 1 month ago. Despite numerous calls to chase this up, and two bounced cheques later, I obviously haven’t been able to fulfill the 14 day obligation. Where does this leave me?
Potentially liable. But I’d have thought that you would have a beach of contract claim against the agents if you ended up with a 3x deposit claim against you. Check your contract ;-)
For the reasons you give above, a civil contribution claim as well?
I was thinking Part 20 them…
I read a case where the letting agent was pursued for the deposit rather than the landlord, (it was successful)
Does anyone have the case reference (not the discussion :) it was an actual case this year – I though I’d book marked it but actually I book marked all the discussions but not the actual case:))
Cait
Nope, sorry.
You could ask Painsmiths what happened to their case.
Cait The case you are looking for may be Jacklin v Fraser Property Management Ltd from May 2009 in the Central London County Court. It is set out in the ‘Property Dilemma’s article in the New Law Journal. There is a link on Tessa’s website
Or here
http://newlawjournal.co.uk/nlj/content/deposit-dilemmas
But that wasn’t exactly a win…
Rats I dont think that was the case or if it is that article doesnt include the issue I was trying to look at
My vague recollection was the case established (loosely – lower court blah blah) that if the LETTING AGENT had recieved the deposit then *they* could be prosecuted rather than the landlord (or be joined to proceedings)
In my clients case the LL and Letting agent are both accusing each other of having the deposit – so I want to nip that in the bud by highlighting that either or both can be pursued
(the rest of the case Im thinking of may not have been successful – but it’s only that particular point I wanted to clarify and use an actual case to do so)
(and I’ve just re-gone through Tess and Painsmiths site and ended up back at this discussion :D)
Cait,
Is yours a ‘let only’ agent or full managing? If the latter, which the landlord’s position would seem to suggest, then the agent is certainly caught by s. 2.212(9)(a) as above and is open to a claim, I would have thought.
The only other option I can think of is to go through the Legal Action archives on Nic Madge’s site
http://nicmadge.co.uk/
But I think I filleted most of the TDS cases from legal Action housing updates.
I’ve had loads of those even before the protection scheme came in. It’s all very well for the legislation to talk about who has responsibility when an agent is involved but how can an outside party/adviser determine the contract between the landlord and their agent? There might be some statute on disclosing this information in the Accommodation Agencies Act but I couldnt find it.
An ex tenant taking action for recovery and 3 x penalty would presumably have to have access to the landlord/agent contract to establish for the court who should be in the frame. What do they do if they assert that there was no written agreement as is often the case with some of our local agencies.
To be frank, a lot of the agencies in our area often collude to create smokescreens when you are trying to sort out allegations and responsibilities. A right old runaround. Prior to the protection scheme I did on occasion have some success by cutting through the BS and just stating that whoever took the deposit is the one who has to return it, although admittedly that might not work now
Hi
I would just point out as an agency using the mydeposits.co.uk scheme you are not able to register a deposit unless you are holding it. So as an agency, we pass on deposits to Landlords to register themselves. MyDeposits are advising Letting Agency is not responsible in such cases. Clearly there is a hole in the legislation then if a tenant does successfully sue an agent on this basis where by the Landlord holding the deposit has not registered it just because the deposit was paid to the agent. Logically, it should be the persons holding the deposit that should be liable.
Rgds
EuGin
Thats the problem I sometimes encounter EuGin. The landlord says the agent has it and the agent says the landlord has it.
We can call the schemes and easily establish that it hasnt been protected but how does the tenant establish who is actually holding it if both landlord and agent are pointing fingers at each other?
Claim against both in the alternative and let them sort it out…
Didnt know you could do that. Would they be 2 separate actions or would you join them on the same N208?
On brief reflection, why faff about? Just Part 8 the landlord. The deposit was either with the LL or, if with the agent, was supposedly put in a scheme on the LL’s behalf. If they are playing the shell game, you can still go for the landlord.
See what Francis says above about not only s.212(9) but s.214(3). The person holding the deposit isn’t necessarily the person you claim against. But the person claimed against should either be the landlord or someone acting on their behalf (the agent). If the landlord says ‘they haven’t got the deposit’, tough. They can still be claimed against. If they want to blame the agents, then that is their problem, not the claimant tenant’s.
Sorry to disagree but that way the legislation is drafted is entirely intentional. The tenant is in the weakest possibly position and so the person who first receives the deposit from the tenant is made responsible (to some extent) for failures in the proper handling of the deposit.
There is no good and lawful reason why a landlord should need to be paid the deposit by an agent (its a deposit, not money the landlord may do with as they please), the agent might as well hold it for the landlord since the landlord will have to hold it in an account rather than spending it.
So, no, this is not a hole, its meant to change agent behaviours I’m afraid.
Francis, I take it you are replying to EuGin, above?
If so I agree, as there is a clear distinction between landlord (or person acting on their behalf, probably agent) and ‘the person holding the deposit’ for the purposes of s.214(3). They may be the same person, but it is not a ‘hole’ in the legislation that they do not have to be, it is clearly intended. Otherwise the landlord could defeat a claim simply by handing the deposit to someone, anyone, else.
Thats worth a shot. I have around 6 cases going through at the moment at various stages seeking redress and advise about 2 a day on their rights to do it. Amazing how over 2 years on, the majority of landlords still either dont know about it or fail to comply. Even when giving written notification to the tenants it is only a relatively small amount I see who give it in the prescribed form. Agents seem clued up but it is the small landlords with only 1 or 2 properties who fall most foul, sounding astonished when advised about it and suddenly terrified