Tenancy Deposits: A retrospective

In advance of the brace of Court of Appeal hearings on the tenancy deposit scheme (TDS), contained in sections 212-4 and Schedule 10, Housing Act 2004, and after the High Court decision in Draycott & Draycott v Hannells (discussed with additional, important comments here), I have been spurred on to think about the original purpose of the TDS for two reasons: first, because it places the scheme in context (as Baroness Hale, in academic mode, said, “in law, context is everything”); and second, because it may be that, in finding its underlying purpose, we might also find the underlying meaning of the provisions.  I begin expansively and then narrow the discussion down.

When the history of the private landlord comes to be written, it will be one in which, for much of the twentieth century, there was decline in the face of rising aspirations to home ownership and the rise of publicly provided housing.  That decline occurred for a number of reasons, some economic, some political, and (forgive the academic-speak) some discursive.  The revitalisation of the private landlord since the early 1980s was the product of a recognition that home ownership levels were unlikely to be sustainable in the long term and the new social sector was occupying a more marginal role.  Despite successive government schemes to incentivise the growth of the “new model landlord” (as John Patten put in the mid-1980s), such schemes were largely unsuccessful; growth has occurred most notably through the industry development of “buy-to-let” mortgages.  The private landlord has become responsible in some areas for providing accommodation to increasing numbers of vulnerable households, which has lead to the sector becoming indistinguishable from the social sector in recent years.

A history is important for three fundamental reasons: first, the private landlord interest has coincided with that of successive governments (of whatever hue), accompanied by the rise of landlord associations, which have the ear of those governments (and others – remembering, of course, that the pre-action protocol on rent arrears does not apply to private landlords, unlike its earlier form which was the subject of consultation); second, those governments have taken a rather simplistic view about the decline of private landlords, assuming that the decline was a product of over-regulation, a regulation-as-burden argument (hence the shift to the assured shorthold as the default tenancy in the Housing Act 1996); third, most private landlords are “sideline” in the sense that they have few properties and are, by and large, amateurs (in legal knowledge terms) – renting is a modern cottage industry.  They have become a legitimate target for government intervention, partly through the receipt of HB and partly because of a policy line that has been drawn between the “good” and the “bad” landlord.

At times, though, the dissenting voices about the growth of private landlordism have raised sufficient concern to make government (at least) listen.  One example is Debbie Crew’s campaign against retaliatory eviction; the second example is the TDS.  My suspicion is that they will be written out of the history of the rise of the private landlord or regarded at best as a blip in their progress.

The dissenting voices about tenancy deposit, lead by the CABx, were able to demonstrate the considerable injustice of the then purely contractual scheme, which caused plentiful dispute and this was also shown in various household surveys.  This had a particular impact on the more marginal parts of the sector, in which the deposit is recycled into a new tenancy.  The government’s response was to set up a steering group of landlords and tenants together with a voluntary TDS in 2000 which they evaluated (or rather, Julie Rugg and Mark Bevan evaluated).  The scheme failed, partly because of disinterest by landlords, although the landlord associations did set up their own TDS.  The government hoped that the Law Commission would resolve the problem, but the failure of the voluntary scheme and the continued existence of the problems, together with the power of the dissenting voices, meant that the government decided to amend the Housing Bill after its first reading.  Rugg and Bevan, however, had cautioned that even bodies representing tenants “… were agreed that the issue of deposit mismanagement is not so pressing to to require the introduction of a full-sector regulatory framework.  The widespread lack of a perceived problem with deposits by landlords and agents is likely to bring such a framework into disrepute and may lead to extensive – and expensive – non-compliance” (at 6.3.18).

Having decided to introduce amendments to the Bill at quite an early stage, in retrospect it is unfortunate that the government only amended the Bill regarding the enforcement provisions on 20 October 2004, on the third (and final) day of the Report stage in the House of Lords, responding to concerns raised by Lord Best (of jrf fame).  The lobbyists had been in full cry on both sides – Shelter and the CABx had issued briefing notes; Baroness Gardner had sat next to the chair of ARLA at lunch that day.  Lord Bassam, a government whip (and formerly a leader of the squatters’ movement), introduced the amendments (see HL Debates, vol 665, col 884) and said (my emphasis)

… streamline the proceedings for tenancy deposits to make it easier for tenants to enforce sanctions against non-compliant landlords … A landlord or a letting agent on his behalf now has 14 days from receiving the deposit to ensure that it is safeguarded by a scheme, that he has complied with the initial requirements of the scheme and to provide a tenant with information about that scheme and its operation.  Until this is done, the landlord is unable to regain possession of the property using the usual “notice only” grounds for possession.

Additionally, we have cut down the number of court hearings required to enforce the provisions.  If the landlord or his agent has not complied within 14 days, the tenant can now apply for a court order requiring the landlord to either return the deposit or pay it into a custodial scheme and an order requiring the landlord to pay the tenant an amount equivalent to three times the deposit.  We believe that this provides a greater certainty for landlords that they will face a financial penalty if they do not comply with the provisions.

We have put something in place in legislation which will not only stand the test of time but, more importantly, will match the very understandable concerns over tenancy deposits expressed by tenants – and to a degree by landlords – over a considerable period of time. …

We have introduced these amendments with the aim of dealing with the worst abuses in the private rented sector.  Obviously those abuses have a disproportionate effect on the poorest members of our communities.

So, it seems that Lord Bassam (at least) was clear about the extent and purpose of the enforcement provisions.  That he was incorrect about their extent – my sense is that the cases which the courts have been considering, and will consider, are not at the “worst abuses” end of the spectrum – does not diminish his understanding of their purpose.  That understanding was that the provisions created certainty as regards enforcement; certainty was provided by the 14 day rule and the financial penalty should be the result , as a matter of course.  That makes sense if one is seeking to penalise the bad private landlord, and to discipline them away from amateurism.  Of course, you lawyers have since made hay out of badly drafted provisions which were not the subject of full parliamentary scrutiny, and exposed the drafting weaknesses in provisions ostensibly designed not just to protect tenants but penalise landlords.  As a result, I side with JS and against my NL colleague, David Smith; NL’s justifiable anger at the drafting of the provisions as interpreted by Tugendhat J in the Draycott case provide an appropriate footnote to the overly self-laudatory comments by Lord Bassam.

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

10 Comments

  1. Thank you for a most interesting article.

    The system as currently drafting seems to be unfair however you interpret it.

    On the one hand there is the prospect of landlords being unfairly penalised for an honest mistake. Together with the problem of what do you do about non AST tenancies which change, for example when a resident landlord moves out.

    On the other hand, with the Draycott solution, you have the question of whether the 3 x deposit award is payable dependent on how the tenancy deposit scheme terms and conditions are drafted.

    Both of these are deeply unsatisfactory. We all await the Court of Appeal decisions with interest.

  2. I would echo NL’s post on the related blog in terms of landlords making “honest mistakes.”

    I don’t think there can ever be such a thing as an “honest mistake” made by landlords (social or private for that matter). The law is the law and to enter into the business of renting properties without a knowledge of the legislation and an awareness of the inherent risks is just bad business sense. You wouldn’t open a deli without a decent knowledge of cheese after all?

    I have to say with one exception private landlords I have rented from have been lovely, honest and fair (oh how I wish TDP had been in place when I rented from that exception). There are those I have come across in a work setting who treat their propeties as their “pension” and take it personally when the law is not on their side and as harsh as it may sound I have no sympathy. Ignorance might be bliss but it is no excuse.

  3. Cameron,

    If there can be no such thing as an honest mistake by a landlord then there should presumably be no judicial discretion in relation to dealing with landlords who break the law. The fact that there is recognises that there are degrees of guilt. It is this failure to recognise the same with regard to TDP that has got us into the current impasse. If the penalty had been subject to judicial discretion the Courts would have been less inclined to allow loopholes to be created and the incentive for landlords to seek them out would have largely been removed.

  4. David,

    I completely agree with you with regards to degrees of guilt and acknowledge that there is a gulf between the landlord who throws a family onto the streets and one who just doesn’t know how to write a valid notice but guilty is guilty.

    If you allow naïve landlords a degree of leniency just because they “didn’t know” then what’s to stop a more unscrupulous landlord taking advantage of such a ruling and complying on the steps of the court? I can understand the reasoning in the judgment but just think it pretty much renders the legislation pointless with the exception of the restriction on issuing s21.

    My view is still that ignorance is no excuse and a naïve landlord making an “honest mistake” and getting stung because of it means that they are less likely to make such an error again. With the majority of tenancies (outside London certainly) we’re not talking huge amounts of money in terms of an award in the tenant’s favour in any case.

    Such consistency is the only way of dragging a degree of professionalism into the private sector. It’s a bit like training a dog. If you don’t reinforce the message again and again the dog doesn’t learn. If you don’t rub its nose in mess it made on the carpet it will keep defecating on your rug.

    I just hope that the judges dealing with the upcoming cases take a wider view of the implications of their decisions rather than that of the immediate case.

  5. I would add that “it was an honest mistake” does not generally add anything to a defence in any other area of private law (with, to an extent, the exception of negligence).

  6. I think a lot of bad landlords feign ignorance, and use it as a defence by trying to portray the tenant as in some way calculating. Our landlady is pretending to be unaware that she was supposed to protect the deposit. We asked her many months ago why it had not been protected. She said she’d get back to us as she thought the agent should protect it.
    In the very common scenario where the tenancy has ended before any dispute becomes apparent, the recent case law you highlight now puts the onus once again on the tenant to try and recover their money. In London, deposits are so much money that most tenants need the money back quickly, otherwise they’re unable to fund the deposit for their subsequent tenancy. I had thought the TDS legislation had been drafted specifically to prevent tenants being effectively blackmailed by the necessity of accepting any proportion of their deposit back as fast as possible. However, it seems that the only way of contesting deposits which have not been protected at all is to take the landlord to court, at which point they may well get their money back, but the landlord sees no penalty at all from disregarding the legislation – thus defeating the purpose of having any specific legislation in the first place. If you look at our case, she won’t give us back the money until some unspecifiied date in the future, on the basis that we can’t find a gas supplier or a gas meter for the property. This has clearly been a problem for years before we moved, she must have been well aware of it, and she knows it’ll take many months to resolve. She took the opportunity to deduct £500 from the previous tenant’s deposit, but has clearly just kept that money for herself, since there is a fundamental problem with the gas supply that she has ignored. But we’re now the ones who have to waste our time taking all of this to the courts.

    • I agree the law is the law, but real protection does a
      Landlord have against tenants that refuse to pay rent on time, are foul and abusive, sponging off the govt,
      Ignoring section21’s , acting like belligerent fools.

      8 weeks rent arrears before proceeding, then section 21 court order, another 3 months, then bailiiffs
      All in the tenant can go 6 months without paying rent.
      The law is indeed an “ass”

    • Um Singer, you seem to be mixing things up. If you are a landlord receiving the tenant’s housing benefit, it is you ‘sponging off the govt’.

      Tenants don’t have to leave on a s.21 notice. Never have. That is the law. So I’m not sure where you got the idea that ‘ignoring’ one is a terrible thing. Not least as some landlords like to serve them at the start of the tenancy.

      I can’t condone anyone acting like a belligerent fool, of course. Never a good idea.

      You seen very confused about process. You don’t need 8 weeks arrears to serve a s.21 notice. I’ve no idea what you mean by a s.21 court order, as there is no such thing. Nor do I understand the 3 months between court order and bailiffs. Obviously depends how busy the local bailiffs are, but 2 to 4 weeks seem more typical.

      The law may indeed be an ass, but it would surely help if you knew what the law was before making this pronouncement?

    • i look to draw a point from singer’s comment (and share your views on his/her phrasing) and i think it may be this. whether going for possession under s21 or s8 the process takes a long time (i accept that ‘a long time’ is a piece of string, but bear with me).

      the initial hearing whether listed by local court practice for 5, 10 or 15 minutes will almost invariably be adjourned if the claim is opposed. dj’s seem allergic to making decisions and i’m never sure i quite understand their logic in case management, however it does feel as if adjourning is a default setting.
      i also know that when confronted with the argument from counsel ‘sorry; only just instructed, can i have 14 days for a defence (and almost invariably counterclaim in disrepair) please?’ the answer will be yes.

      the next hearing will be ‘first open date after…’ 2 weeks for D, 1-2 weeks for Reply but then of course as we know ‘first open date after’ means ‘add a random number of further weeks’ because courts are so overloaded.

      now (as i have to explain to landlord clients) the law is there to protect everyone, not just them, and they have parted with their property and it is no longer theirs for the time being. however, very often, the tenant is initially represented under devolved powers and then for whatever reason (may well be the fact that said tenant has told the solicitor a load of nonsense and solicitor has properly concluded there are no merits to a defence) tenant turns up next time on their own.

      months have now gone by even if an efficient landlord has acted promptly on arrears or under s21 (but how many landlords accept the tenant’s word for at least 1 month that the failure to pay rent is a blip and they can get back on track). if a 14 day order is given at the next hearing we know the tenant won’t move – quite often because the LA are telling them they can’t be considered as homeless until after eviction (not the fault of the courts or the legal system of course). and the wait for a bailiffs appointment is certainly 6-8 weeks in the courts where i tend to be (according to my solicitors). all not so terrible if HB is in payment for some or all of the rent, but in many cases landlords are getting not a penny.

      of course a defence with merit may well take aeons to hear – and that gets my goat rather less. it’s the unconscionable delay in cases without a defence that i find hard to live with. and i of course speak as one who represents more tenants than landlords. so i can understand the feelings articulated above. especially when the outcome is a huge money judgment that will never be enforceable.

      i know you know all that, giles, so this is not an attempt to deliver you an egg-sucking lesson. but it is certainly the case that many perfectly straight landlords are very badly served by the procedure for obtaining possession.

      while parts of the law may indeed be an ass (errr asses?) procedure (and a horribly under-resourced court system) strikes me as the real donkey.

    • I’d agree with all of that. And frustrations of the delays and errors caused through the under resourced courts are felt by everyone.

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