Qurat-Ul-Ain Zia v Mourtada Central London County Court 09/02/2010
This case in Central London County Court has been reported briefly in Legal Action [but we have had the transcript – NL]. While this post makes reference to the Tiensia case this matter actually concerns an issue which will probably not be dealt with by the Court of Appeal. Specifically, it deals with the question of whether a tenancy deposit taken prior to the introduction of the tenancy deposit protection schema should be placed into protection on the renewal of a tenancy.
Facts
The facts are simple. A number of consecutive tenancies had been entered into between Q and M, the most recent commencing on 6 December 2008. The tenancy agreement for this tenancy made reference to a deposit of £1400 described in the agreement with the words “Deposit £1,400 (already held)”. A further clause in the agreement made provision for the payment of a deposit by M to Q to hold for the term. This clause apparently was a reference to the deposit already held by Q. M fell into arrears of rent and Q issued a notice under section 8 of the Housing Act 1988 for possession. M counter-claimed for the usual penalties for an unprotected deposit to be offset against the arrears of rent.
Received
The argument revolves around the wording of s213(4) of Housing Act 2004 which states that a tenancy deposit taken in relation to an AST must be dealt with in accordance with the legislation “as from the time it is received”. For M it was contended that the money was received anew each time the tenancy was renewed. Q argued that the word ‘received’ should be given its natural meaning and the deposit monies were not received in December 2008 but much earlier, prior to the introduction of the requirement to protect in April 2007.
Judgement
The Court was not prepared to follow the arguments advanced for Q. It was held that the deposit, while not physically repaid and paid again at each tenancy renewal was, nonetheless, received anew each time. The Court drew a distinction between the “nature and function” of the monies and the manner in which they had physically been held. Accordingly, it was held that the deposit had been ‘received’ in December 2008, had not been properly protected, and therefore judgement was given for M for the usual penalty of three times the deposit.
Discussion
With respect to the Court (and possibly courting the opprobrium of he masses) I am going to suggest that this decision is incorrect. If we consider the ruling of Longmore LJ in the Court of Appeal decision in UK Housing Alliance v Francis (which we discussed here) he states that the Act contains a “pervading reference to money ‘paid’ by the tenant to the landlord, ‘received’ by the landlord and ‘repayable’ by the landlord to the tenant”. Admittedly this judgement was given in reference to a situation in which the tenant had never transferred any money to the landlord but had had a sum that was potentially due withheld. However, this reference to payment as highlighted by Longmore LJ would seem to require a transfer of monies at each stage. It is clearly not the case that M paid money to Q on each renewal and therefore I would venture to suggest that the suggestion that there is a form of virtual receipt on each renewal is an overly strained construction.
With thanks to Alan Mullem at Moss Beachley Mullem & Coleman for the copy of the full judgement.
I am happy to be one of the masses to visit opprobrium upon your comment. Clearly your thinking is flawed. Had the landlord allowed the tenancy to continue as a periodic AST but issuing a Section 13 Notice to increase the rent on an annual basis then the deposit would clearly be outside the scope of the Tenancy Deposit legislation. However in this case the landlord chose to bind the tenant to another contractual period whilst retaining the one month’s rent in advance already held in their bank account. The tenant would also be required to pay another months rent, therefore money changed hands and the landlord could have used this to pay into the TDS as he was already holding one months rent. The landlord chose not to do so and as a result paid the price, well done that Judge.
Eian, I also disagree with David, but for different reasons, which I’m going to try to set out later. I’m afraid your argument is flawed – rent in advance and deposit are distinct and separate things. There is no suggestion that there was any set off of the deposit against rent, so no need for the tenant to pay ‘another month’s rent’. No money was received by the LL that way.
i would regard UK housing alliance v francis as distinguishable on the basis that the amount claimed to be a deposit in that case had not been paid at any time. a deposit actually paid before the commencement of the act HAS been paid and received. longmore lj’s judgment did not have to deal with those circumstances at all.
i agree with eian in the sense that when a new tenancy is issued (as opposed to the continuation of the expired ast as a periodic tenancy) the previous tenancy ends by consent. in that case T is entitled to the return of his deposit. when the new tenancy starts LL is entitled to receive whatever amount of deposit is stated in the ast. generally neither of these things happens.
the intention of the act is that the tenant’s deposit be protected.
if the actual receipt of money were required there are two scenarios:
1) LL and T go through the time-wasting process of having the amount of the earlier deposit returned then repaying the same amount as a new deposit;
or 2) LL and T accept that an amount due to T is offset by an equal amount due from T.
in 1) T benefits from the protection of the act; in 2) T does not.
this would make a nonsense of the act.
alternatively equity would estop LL from relying on non-physical receipt to disadvantage T when they have signed an agreement specifying the amount of deposit whether ‘already held’ or not.
could not any ‘physical receipt’ argument be applied to payment by cheque with the peculiar status applied to cheques in law. … and that way madness lies.
I am not sure I agree that the interpretation I am putting on the Act makes a nonsense of it and is therefore invalid. The decision in Draycott v Hannells Lettings Ltd arguably makes a nonsense of part of the Act but I believe that it was correct. The Act has substantial flaws and loopholes in it but these should not be for the Courts to correct.
This particular problem is largely a temporary effect which will die away in time. Therefore, the word ‘received’ should be given its plain meaning and a strained interpretation should not be adopted to fix an issue which is, ultimately, a matter which affects very few.
Turning to the point David made I agree that a statutory periodic tenancy is a new tenancy and if this decision is correct it is my view that a tenancy should have its deposit protected once it becomes periodic. This, to some extent, answers Eian’s point as well in that the distinction drawn between a periodic and non-periodic tenancy does not, in fact exist. The fact that it applies to periodic tenancies as well suggests that the natural meaning of ‘received’ is the right one as otherwise the traps for unwary landlords would operate even where they left well-alone.
I wonder if there could b a parallel in an investment bond? I take out an ISA and keep it for the number of years. At the end of the time, I decide to invest the same money in another product with the same financial institution. Physically I don’t ever handle the money or get a cheque, but I doubt few would agree this would be a new investment. I would suggest the critical thing is that that purpose for which the money is held (this is the legal definition of the deposit, money held for the performance of the tenant’s obligations) has changed. If you sign a new tenancy then there may be different clauses around the deposit (perhaps because the landlord has used a different tenancy agreement), but even if the same words are used, it is still held against a different contract. The prescribed information regulations also say that information must be given about reasons the deposit may be withheld “by reference to the terms of the tenancy”, note the specific article “the” tenancy. Could this not require new information as a new tenancy is started.
Regarding the last comment above and the issue of statutory Periodic tenancies is there not a reasonable argument that on the wording of Section5 of the Housing Act 1988 the statutory periodic is a new tenancy as it repeatedly talks of the original tenancy “ending” and another tenancy “being granted” or “arising”? Though the money may be in a scheme perhaps prescribed information should be given to protect the landlord.
Some happy bunnies here…
http://news.rla.org.uk/index.php/archives/914
Our report is on its way…