Tenancy Deposits- A Novel Argument on Hold

[Edit 24 May 2011 – To all those coming from the Netrent blog, the case report you actually want is this one. Looks like Netrent got confused between the County Court case and the Court of Appeal hearing of the same case.]

Hashemi & Johnson v Gladehurst Properties Ltd, HHJ Cryan, Clerkenwell & Shoreditch County Court, 9 December 2009, Unreported

This matter is by way of an appeal from a decision of DJ Stary refusing to set aside a decision of DJ Manners to strike out the Claimants claim for the usual penalty of three times the deposit pursuant to s214 of the Housing Act 2004 as a response to the Defendants failure to register it with an approved scheme.

The tenancy agreement had implied that the deposit would be registered but it required the Claimants to request this and pay an additional administrative fee. They did not do so and the deposit was never registered. The Claimants vacated the property in 2008 and after the Defendant made deductions from their deposit they commenced a claim for the return of the deducted money plus the normal three times the deposit figure.

The claim had a number of procedural issues. For one, although there were two tenants, and therefore two Claimants, only one of them, Mr Hashemi, appeared to be bringing the claim, Mr Johnson apparently having returned to America. By the time of the hearing before HHJ Cryan J had produced a witness statement which appeared to make H his agent in the case, however the precise nature of the relationship and the consnet given was not clear.

Perhaps the most interesting aspect of this case is the differing views of the tenancy deposit provisions on the part of all three judges involved in this matter.

  • DJ Manners struck out the claim on the basis that the tenancy had ended before the application was made.
  • DJ Stary refused to overturn the decision of DJ Manners on the basis that the Claimants had acted unfairly by not notifying the Defendant during the tenancy of its failure to protect the deposit when it might have been able to remedy the situation. DJ Stary also seemed to feel that she had a degree of discretion in the making of any order in regard to an unprotected deposit, something not provided for in the Act.
  • Finally, HHJ Cryan, set aside the decision of DJ Stary. He got the law right but still made an error, albeit a trivial one, in stating that there were two custodial deposit schemes and one insured scheme as opposed to the other way around. He dismissed the argument advanced for the landlord that as the Act stated that the application could be made by ‘the tenant’ it could only be made during the currency of the tenancy and not after it had ended.

HHJ Cryan has restored the claim for the Defendant. We understand that there is a permission to appeal request pending in the Court of Appeal but that this has been stayed until after the decision in the conjoined matters of Universal Estates v Tiensia and Honeysuckle Properties v Fletcher.

This case is interesting in respect of the argument that the tenant can only claim during the lifetime of the tenancy which was dismissed; the suggestion by DJ Stary that a tenant should not deliberately wait until after the end of the tenancy to ‘ambush’ the landlord with a claim, also dismissed; and finally the suggestion that where there are joint tenants they must make the claim together, a point which was not decided due to the involvement of the second tenant by the time of the appeal but one which has apparently swayed judges in other County Courts.

The full judgement can be found here.

With thanks to William Ford of Osbornes who provided a copy of the judgement.

About D

D is a solicitor specialising in landlord and tenant matters with a London firm.
Posted in Assured Shorthold tenancy, Deposits, Housing law - All and tagged , .

15 Comments

  1. The logic behind clause 8.1 of the tenancy agreement (paragraph [5]) is not immediately obvious. Either the tenant pays £100 or the landlord faces a claim for three times the deposit. An unfair contract term no doubt, but the clause doesn’t make much commercial sense.

  2. Pingback: Hashemi & Johnson v Gladehurst Properties Ltd | Keywee.co.uk

  3. “I am doubtful that Parliament intended to create such a toothless watch-dog as Ms West for the respondent so tenaciously argued.”

    Great comment from the judge :)

    Cait

  4. we desperately need a firm CA decision giving guidance on the interpretation of these regulations. The law is in an absolute mess at the moment. Let us hope that the Tiensia decision makes things better and not worse.

  5. I note from the CA casetracker that Tiensia was heard on 7 May but that judgment was reserved. Can anyone who is involved confirm this?

  6. New County Court Judgement on Deposit Law

    [Note – edited by NL for clarity, to remove irrelevant details and unsupported factual assertions about third parties]
    […]
    On June 30th 2010 I acted as McKenzie Friend to a landlord in presenting certain arguments and His Honour Judge Seys Llewellyn QC of Cardiff County Court in an Appeal from Bridgend District Judge upheld my argument and even strengthened it with additional comments of his own, throwing more light on the Draycott v Hannells Lettings Ltd case. The crux of my argument was ‘The central pivot of this Section 214 is that there must be a “person who appears to the court to be holding the deposit” for any claim to succeed,’ and all the wording about authorised schemes and a 14 day period are irrelevant if that pivotal element is not present.

    Of course, as a County Court decision this is not binding on other courts as a High Court decision is, but nevertheless it can be brought to the attention of other County Courts who are likely to accept guidance from it, especially as it was an Appeal at Circuit level. For that reason I believe it is worth reporting in some detail.

    The basic facts of the case were that a Mrs. c[…], a tenant of a Mr. W[…], died […] on or before 5th February 2009, […]. Her adult son and daughter visited a few days later, […] handed him the keys and demanded the return of their mother’s deposit. He took the view that the latter would cover a final month’s notice which ought to be given. He knew nothing at all about the deposit legislation and schemes either at the beginning of the tenancy in January 2008, some eight months after the legislation came into force, or at the end.

    A couple of months later, without any protocol pre-action letter, Mr. W[…] received a Summons via the online county court at Northampton from Miss C[…], the daughter, for an undifferentiated £1,500. […] in preliminary hearings it was allowed that the details be made clear, that the claimant be changed to the son, Mr. C[…] who had been appointed personal representative of his mother’s estate, and that the claim was for return of deposit (£360) plus an addition of three times that sum.

    […] Mr. W[…] defended the claim with the central point that he had used the deposit for the last month’s rent and therefore he held no deposit and could not be liable even though he had not used any of the authorised schemes. He also made a counterclaim for damage to the property, […]

    On 22nd February 2010 in Bridgend County Court a visiting Judge Hendicott, […]determined […] that the tenancy ended on the date the keys were handed back and therefore ordered return of the deposit and of £83 for a part month already paid […] and also imposed the “fine” of three times deposit. He allowed only £200 of the £400 counterclaim, so with costs the total order against Mr. W[…] was for £1,693.

    He immediately appealed, for which permission has to be granted. A written response from the Circuit Judge to a long and detailed submission made it clear that he thought an appeal against the ruling that the tenancy ended with the tenant’s death and handing back the keys had every chance of success as had an appeal for the whole of the counterclaim, but that a claim against the imposition of the “fine” had no chance.

    This would have meant either that there could be no return of deposit but nevertheless the imposition of the “fine” OR that there were two opposing debts of £360 (one for rent, one for deposit) but they could not be off-set against one another. Fortunately, an oral hearing for further argument could be arranged, and in the event, as part permission had already been given, there was a single hearing of all the appeal points.

    […] His Honour Judge Seys Llewellyn QC reversed his initial decision on the matter of the “fine.” He accepted that the tenancy had to be properly determined with a month’s notice ending on a rent day and that the deposit could be set against the last month’s rent as the Tenancy Agreement specifically allowed for that eventuality. He then, crucially, accepted my argument that it followed that there was no-one holding the deposit who could be ordered to repay it and that it followed again from this that there could be no imposition of the three times “fine.”

    On the latter point, he was of the opinion that S.214, subsection 4 (the three times) could have been independent of subsection 3 (the return of deposit) but it clearly was not independent not only because of the “also” which I had emphasised but because the order mentioned in sub 4 must be the one mentioned in sub 3. So these two central subsections stood or fell together.

    In the Appeal I had referred to the recent High Court case of Draycott v Hannells Lettings Ltd, claiming that the same principles were in operation. In his written response the Judge had disagreed with that, but he now agreed that athough different because in this case there was no use of an authorised scheme at all, nevertheless in both cases the essential elements were the same. In my phrasing, “The essential points in Draycott were that the Defendant was no longer holding a deposit and that the Claimant was suffering no loss. It is exactly the same here, Mr. W[…] is not holding the deposit and Mr. C[…] has suffered no loss.

    In argument I had made the case, as often previously on forums, “that It must first of all be recognised that the purpose of this section of the Act is the protection of tenants, not to provide a stick to beat ignorant or inefficient landlords,” and I had again referred to Draycott in which the Court noted the long-standing “presumption against doubtful penalisation.” His Honour Llewellyn endorsed that view by referring to the argument of the Counsel for Draycott who claimed that the Act revolutionised the handling of deposits and intended the punishment of landlords who failed to abide strictly by the rules, but Judge Tugendhat had rejected that view and that rejection is a binding decision for lower courts.

    The final result was that the award of £1,693 to Mr. C[…] was overturned and Mr. W[…] was awarded £400 damages plus £263 costs.

    As with Draycott, this case should be widely published and used to deter and rebut those tenants or their descendants who have suffered no actual loss, but see this legislation as cutlery to feed their greed. On the other hand, we must recognise that although very badly drafted It establishes that tenants need not only the right to have a deposit returned, but also the ongoing assurance that it will be returned at the end of the tenancy even if the landlord is dead, bankrupt, or just a rogue, and that is to the good.

    • So, in short your argument is that because the LL has spent the deposit, he can’t be found to be holding it? Further, that the LL’s ability to make off with the deposit money because it was unprotected should be the basis for his defence against a breach of Housing Act 2004?

      I’m surprised that the CJ found that the deposit could be used for the last months’s rent and had been so. The statutory requirement is that the deposit be protected on receipt (and your friend’s ignorance is no excuse at all) and that dealings with the deposit are done through the TDS. As statute this overrides any provision in the tenancy agreement. Your friend could have made a request to the Scheme that the deposit held be set against unpaid rent, but any provision in the tenancy agreement allowing him to do so unilaterally is overridden by the statutory requirements. So, with respect to the CJ, my view is that this is a bad decision.

    • While I am pleased to see the Draycott v Hannells case being used I must, with respect, disagree with the argument advanced here. It was not the case that the deposit was no longer held in Draycott. It was being held within a scheme, albeit that it has been registered late. Also, having spent some time dealing with the skeleton argument in Draycott I can say with confidence that this was assuredly not the principle we were relying on.

      The fact that the landlord had legitimately allocated the deposit does not absolve him of the need to register it. Section 213 is clear that the deposit must be dealt with in accordance with a scheme “as from the time that it is received.”

  7. ‘with respect to the CJ, my view is that this is a bad decision.’

    that is putting it mildly in my opinion! the word ‘nonsense’ springs to mind, although i would, of course, never use it of any judges.

    • Dunno. But I think the Court of Appeal have only recently had the responses to the question sent to the parties. So could be a while.

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