Draycott & Draycott -v- Hannells Letting Limited  EWHC 217 (QB)
This is the first High Court judgment on the tenancy deposit scheme element of the Housing Act 2004 and thus the first that is binding on all lower (County) Courts. This is therefore a significant decision.
This was an appeal by Hannells from a Circuit Judge decision. The Draycotts had entered into a 12 month AST with Derby Build Ltd (the landlords) on 28 February 2008. A deposit of £2,700 was paid to the agents, Hannells, who, according to the tenancy agreement, were to hold the deposit as stakeholder. The deposit was credited on 4 March 2008. The deposit was not registered with the DPS until 19 May 2008 and the Draycotts informed of the details on 21 May 2008. On 27 November 2008, the Draycotts brought a claim under s.214 Housing Act 2004 on the basis that the deposit had not being registered and information given within 14 days of it being received. The claim was brought against the agents.
At first instance, the Circuit Judge held that the claim could be brought against the agents on the basis that the definition in s.212(9) ‘references to a landlord include references to a person or persons acting on his or their behalf in relation to the tenancies’ [my paraphrase] applied to s.214(4), the requirement to pay three times the deposit. The Circuit Judge also held that s.213 meant that the deposit had ‘to be dealt with in accordance with an authorised scheme from the time it was first received’ and s.213(3) did impose a 14 day requirement. Accordingly he awarded the 3x penalty, observing that to do otherwise would permit an unscrupulous landlord to simply avoid a scheme until a claim was made, then comply, ‘driving a coach and horses’ through the Act.
On appeal, there were two main issues:
i) Whether an agent can be pursued for the 3 x deposit penalty under s214 due to the deposit being unregistered; and
ii) Whether the penalties under s214 take effect after a failure to comply with the 14 days requirement or only if the deposit is unregistered when the claim comes to court.
Mr Justice Tugendhat held:
On i) the words of s.212(9) are clear and unambiguous, with no need to consider extraneous material. The words ‘the person who appears to the court to be holding the deposit’ in s.214(3)(a) are not otiose, but rather limit the scope of a possible order to the person holding the deposit and exclude anyone else who might be defined as falling under the term ‘landlord’. S.214(4) has no such limitation, it is penal and the penalty is imposed on the person who is responsible for the failure to comply with s.213 and protect the deposit. Where the failure was the agent’s, there was no reason why they should not have a s.214(4) claim brought against them.
On ii) while a failure to pay a deposit into a scheme is certainly a breach of s.213(4), it cannot simply be equated with the requirement to protect the deposit within 14 days of receipt.
“The requirement that there be payment into the Scheme is the initial requirement of the the Scheme, and not the requirement that it be done within 14 days. The time limit of 14 days is a requirement of s.213(3)”.
For s.214 to bite, the requirement is that ‘the initial requirements of the Scheme’ have not been complied with, so the breach is governed by s.213(4), which states
For the purposes of this section “the initial requirements of an authorised scheme are such requirements imposed by the scheme as fall to be complied with by a landlord on receiving such a tenancy deposit.
So ‘initial requirements’ do not necessarily include the 14 days unless required by the Scheme itself, and the DPS scheme, at this time, did not impose a 14 day requirement, although it did state that the landlord or agent was responsible for ensuring that the deposit was submitted for protection within 14 days of receipt.
Once a deposit had been lodged with the Scheme, and, on the basis above, the initial requirements complied with at least before the hearing of a claim, the Court could not make an order under s.214(4).
S.214(2)(a) states that an order under s.214(3) and (4) is triggered if ‘the court is satisfied that [the initial] requirements [of an authorised scheme] have not … been complied with in relation to the deposit’. Accordingly, if the deposit can be and is protected in accordance with the initial requirements at any point before the hearing of the claim, the claim under s.214(4) must fail, although if the deposit was unprotected at issue of the claim the landlord faces an order for those costs. [para 51]
To the objection that this leaves the unscrupulous landlord free of penalty, there is the counter view that s.215 is untouched. It is not possible for the landlord to serve a valid s.21 Notice until the deposit is protected.
Appeal allowed on this issue.
Where does this leave us?
Firstly, the agent point is quite clear and I’d say, entirely correct in terms of the meaning of s.212(9). Agents are potentially liable if they are the ones handling the deposit and who failed to put it in a scheme.
The late compliance point is not as straightforward as it looks at first reading. The finding here is that there is no requirement within the terms of the Housing Act 2004 itself that the deposit must be protected within 14 days of receipt that will incur the 3 x penalty. Thus, in terms of the Housing Act 2004 by itself, late compliance up to the very doors of court is possible and will allow the landlord to avoid a 3 x deposit penalty.
But does this mean that landlords (and agents) are home free on the late compliance point? No. While there is no 14 day requirement in the Act, the requirement is to comply with the initial requirements of an authorised scheme. Failure to do that may well trigger the 3 x penalty. The question then is what are the initial requirements of the scheme?
The initial requirements of the specific scheme in this case – the DPS scheme in March to May 2008 – did not include a requirement for submission within 14 days of receipt by the landlord/agent. But what if the specific scheme that was used did include such a requirement at the time the deposit was received? On the analysis here, s.214(4) might be be triggered by any delay over 14 days. Or is it the requirements in force for a scheme when the deposit is submitted to it? After all, when a deposit is not being paid into a scheme, which of the schemes’ requirements are potentially not being complied with?
We may have had clarity on one point, only to open up a new layer of complexity. What were the specific initial requirements of the authorised scheme at the time? And is that the time the deposit was received or submitted to the scheme? And if received, then the requirements of which scheme?
In the meantime, this has made s.214(4) 3 x deposit claims very difficult for tenants – if late compliance is enough to defeat the claim under the Housing Act 2004 – and, for the moment at least, any legal representation for the claimant tenant will have to be paid in full, because a CFA on a claim that can be defeated at the landlord’s whim is a non-starter.
By the way, Painsmiths acted for the appellant and we have had good reason to link to Painsmith’s blog often in the past.