This is the long awaited Court of Appeal decision on tenancy deposit protection. It is a conjoined appeal of Universal Estates v Tiensia and Honeysuckle Properties v Fletcher.
The facts of the two cases are very similar. In both cases the landlord had issued proceedings for possession for arrears of rent. The tenants had in both cases counterclaimed on the basis that the deposit was unprotected and the landlords had then put the deposits into the scheme operated by Tenancy Deposit Solutions Ltd (trading as MyDeposits) prior to the hearing of the tenant’s claim in Court.
The deposits were obviously protected late (outside 14 days) and arguably failed to fulfil the initial requirement of the MyDeposits scheme to protect within 14 days of receipt. There was a further point as to what date the Court should consider compliance by the landlord with protection, at the date of issue of claim, or at the date of hearing.
In short the Court of Appeal held that the case of Draycott v Hannells Lettings (which we reported on here) was correctly decided for much the same reasons that were given in that case. In short there is no penalty within the legislation for protection later than 14 days but rather the penalties apply for failure to protect at all. The further point in Draycott that the 14 day rule within the DPS scheme could not be an ‘initial requirement’ of the scheme was also found to be correct and the Court of Appeal went further by stating that no scheme can impose a time limit on protection as an initial requirement or at least not one that bites in a legislative (as oppose to administrative) sense.
Where the Court of Appeal went (much) further is that it held that the appropriate point where the Court should consider the protection status of the deposit is when it comes before the Court for a hearing and not at the date where the proceedings are issued. In other words the landlord has until the date of a hearing to correct his failure to protect the deposit properly.
To a large extent this judgement acts to “drain the legislative scheme of all effect by reducing the remedy for non-compliance to near-impotence” to use the words of Lord Justice Sedley (who gave a dissenting opinion). Lord Justice Rimer (who gave the leading opinion, Lord Justice Thorpe assenting) gave some (very cold) comfort to tenants by asserting that if they were forced to go to Court to compel a landlord to protect their deposit then they should be able to recover their legal costs. However, he gave a clear warning against tenants ‘ambushing’ landlords by issuing proceedings without first complying with pre-action directions and sending a letter of claim.
All three justices stated that their decision was not one which accorded well with what they suspected had been intended by Parliament but the majority concluded that the drafting left them little choice. We have considered the original purpose of the legislation here. At this stage the onus is now on Parliament to reconsider the legislation and probably amend it. Whether that will actually occur is anyone’s guess.
In summary then, the position is that a landlord can protect a tenant’s deposit at any stage right up until the steps of the Courthouse and serve them with the prescribed information and escape the relevant penalties. The Court has not ruled on what the position is once the tenancy has ended and whether a landlord can protect the deposit at that stage and still escape liability. This issue remains one which needs a higher court decision.
However, (to throw in my two cents worth) it seems to me that it must be an implied condition of any scheme that the deposit which is being registered with it is one for a tenancy that is actually in existence at the date of registration otherwise the schemes become unworkable in an economic and business sense, particularly the insurance backed ones. I will leave you with that thought.