Gladehurst Properties Ltd v Hashemi [2011] EWCA Civ 604 (Not on BAILII at time of writing)
UPDATE: Transcript now available on BAILII
In Tiensia LJ Sedley said that the decision of the majority ‘eviscerated’ the tenancy deposit protection legislation. The Court of Appeal has now returned to complete the job with a hanging by the neck until almost dead followed by a quartering with the body parts to be distributed throughout the kingdom.
The facts were relatively simple. Mr Hashemi was a tenant, along with a Mr Johnson, of Gladehurst Properties. The tenancy deposit of some £6,240 was never protected by G. Much of that deposit (less a deduction of £1,123.99) was returned to the tenants after the tenancy. Mr Hashemi then brought a claim against Gladhurst for the return of the rest of the deposit and for the usual three times penalty with the name of Mr Johnson on the claim form but apparently without his permission. After a number of hearings the case eventually came before the Court of Appeal.
Mr Hashemi had by the time of the hearing obtained a witness statement and written confirmation from Mr Johnson that he was aware of the proceedings, assented to them, and was happy for Mr Hashemi to pursue the appeal on his behalf. This was considered to be important by the Court of Appeal as they held that joint tenants must take a tenancy deposit claim jointly and cannot act alone. This was one of the issues which remained uncertain in the legislation.
The case ultimately turned on the wording of s214(3) and 214(4) of the Act which set out the penalty component of the legislation. S213(3) states that the Court must make an order either returning the deposit or that it be paid to the custodial scheme while section 214(4) states that the court must also order payment of three times the deposit to the tenant. These clauses have caused controversy, particularly in situations where the landlord has returned some or all of the deposit to the tenant and/or the tenancy has ended. How can the Court order the deposit to be returned to the tenant if it already has been and how can the court order the deposit to be paid into the custodial scheme if the tenancy has ended. In short, the Court of Appeal has resolved these disputes in a radical way. They have ruled that s213(3) can only make sense if both options (return of the deposit or its payment into a scheme) are available to the Court and this can only be the case where the tenancy is still ongoing. Therefore the Court has held that the monetary penalties for non-protection of the deposit are not available to the tenant when the tenancy has come to an end. In other words tenants cannot make claims against their landlords for three times the deposit at any point once the tenancy is over.
The decision is pretty surprising. It seems that the Court of Appeal wanted to avoid tenants taking claims for the penalty a substantial time after the end of their tenancy. Personally, I always though that this is what the Limitation Act was for and that if Parliament wanted to have a claims limit that was different to that then they should legislate for it but clearly the Court did not agree. However, in a time where there are complaints about judges overriding the will of Parliament this would seem to be an unwise decision. I am looking forward to the Daily Mail highlighting this case as an example of the problem in the next few days.
To be blunt, I think the Court of Appeal has got this one wrong. Sorry chaps (and Mrs Justice Baron of course) but there you are.
One of the main places in which they seem to have led themselves into error was their apparent belief that the Act says that the Court must order the landlord to repay the deposit or to pay it inot a custodial scheme. It is this fairly common error which has led to the whole discussion about the Court ordering landlords to pay back monies they do not actually have. In fact, the Act requires that the person who appears to the court to be holding the deposit should pay it back to the tenant. If the landord has returned the money to the tenant then this section drops neatly away as the tenant would only be ordered to pay it back to himself. It was in seeking to avoid the issue of ordering landlords who have already paid the deposit back to do so again, which led the Court to come up with their new limitation on claims. I see no reason why both alternatives set out in s213(3) have to be available to the Court for s213(3) to operate. In fact, it was the very fact that both alternatives would not be available that must have been in the mind of the drafter when he placed at the start of s213(3) the qualification “as it thinks fit” and thereby gave the Court the power to choose which of the two options was suitable in the circumstances before it.
The other area in which I take issue with the reasoning of the Court is when they try to justify their decision by suggesting that s214(1) should have extra text added to it so that it reads that the necessary obligations have not been complied with and are still capable of being complied with. I just don’t see the purpose in adding in this sort of text when it has no real value. If the Court really wanted to save Gladehurst from the fire they could have simply read the phrase “must also” in s214(4) in a very narrow manner and ruled that this meant that if the deposit had been returned apart from legitimate agreed deductions (which would probably count as returned anyway as they were agreed) then the three times the deposit penalty could not be applied.
Finally, as my fellow blogger, Dave, has highlighted the Court has erred by agreeing with the Court in Tiensia that the purpose of the legislation was not to punish landlords. It was. The government was crystal clear that it intended the penalties to be there to punish bad landlords. By trying so hard to avoid this scenario the Court of Appeal has now successfully destroyed the legislation in two straight decisions.
One of the new issues raised by the decision is what is the position if a tenant does what is required by the Court and starts a claim during the tenancy which the landlord ignores and then, as often happens, the tenancy ends before the issue finally appears before a Court. Following the decision in Tiensia the Court should consider the position as at the day the matter comes before them, conclude that the tenant cannot make the claim, and would then presumably strike out the tenant’s case. I am not sure if the Court would award the tenant costs in this scenario. This would be a totally ludicrous outcome. In fact the only really solid way I can think of to actually claim the penalties is as a counterclaim to a possession action based on rent arrears.
The government has hinted again that it will use the Localism Bill to amend the tenancy deposit legislation to deal with these issues. If that is the case then one wonders why they objected to the amendments already tabled by Shelter and NACAB which were perfectly suitable. If they are planning to use the Localism Bill to sort this out then they had better hurry as it had its 3rd reading yesterday. In the meantime the only real penalty for a landlord who does not protect a deposit is that they cannot serve a section 21 notice.
Makes my judgment earlier this month alongside this one completely destroy the ‘intent’ of the Law doesn’t it.
Ludicrous and a very sad month for ‘justice’.
Seems there’s hardly sufficient benefit in advising clients on TDS disputes these days as you might as well say don’t bother…
(Dave I think your usual excellent spell check has gone missing on this post and there’s one little bit where you say ‘This was one of the issues which remained uncertain as the legislation seemed to imply that the…?’ in the 4th paragraph.
Very useful if not sad post though
I’ve de typo’d the post and changed that sentence. David did the post at great speed…
Just to avoid confusion, I think there may be a couple of reference to 213, where you meant 214?
“The case ultimately turned on the wording of s214(3) and 214(4) of the Act which set out the penalty component of the legislation. S213(3) states that the Court must make an order either returning the deposit”. “They have ruled that s213(3) can only make sense” (same para)
And
“I see no reason why both alternatives set out in s213(3) have to be available to the Court for s213(3) to operate. In fact, it was the very fact that both alternatives would not be available that must have been in the mind of the drafter when he placed at the start of s213(3) the qualification “as it thinks fit”” in a paragraph further down.
Thanks for the comments.
Where does this leave “renewal” tenancies?- i.e.
a. Fixed term tenancies signed after April 2007, where deposit was not protected.
b. A new tenancy has been signed between the same landlord and tenant but no new deposit taken.
I believe that some county court judges have held that the legislation applies and that a deposit has impliedly been taken in connection with the second tenancy.
Presumably that has now been kicked out the water.
It is not an uncommon scenario and obviously relevant to the validity of S21 notices served in connection with the second tenancy.
This case has nothing whatsoever to say about these situations. The case is about the ability to recover monies and does not really touch on the issue of what is meant by receipt and the s21 notice penalty.
Thanks David
What is the County Court case that deals with renewal- (Clerkenwell from memory but can’t find the reference.
There are a few. I think the best reasoned one is Qurat-Ul-Ain Zia v Mourtada. We covered it here.
So this essentially means you can’t even use the law to get your original deposit back any more? If you discover your landlord hasn’t protected the deposit at the end of the tenancy, you’re basically back to the days when there is no protection except to go to small claims and contest it item by item?
Surely that is so absurd that someone’s going to take a particularly egregious case to the Supreme Court at some point?
This is essentially true and is one of the most crazy parts of the judgement. A tenant who does not know about the legislation until after the fact is in a very difficult position and the decision basically deprives them of the ADR process that was a key part of the legislation.
A case before the Supreme Court would be a tough one as you would have to go through the Court of Appeal first. I suspect the answer will actually come from legislative change.
Would/could a legislative change help anyone who is already pursuing an unprotected deposit or would it only apply to tenancies after the new law came in to force?
Obviously, those of us who were waiting on the result of Hashemi v Gladehurst are now in the awkward position of having to decide whether to wait for potential legislative change or whether a long delay might count against us in the eyes of a judge etc…
That’s what happened to me on the 11thactive I would have gotten more. What average thinks about their deposit until they need it back. Jan, I wasn’t able to get my bond back even though they have had it since April 2011 and didnt deposit into a scheme until after legal proceedings began and the tenancy had ended. This means I now have to chase it up through them and I only have just received the information of the deposit. The judge did award me my court costs but nearly a year without my own money and the sad fact that had I been quicker in complaining while the tenancy was the apellant has permission to amend her grounds of appeal to include an assertion that the judge was wrong to award damages under s 214(3) and (4)…. as the claimant was not a tenant when the proceedings were issued.
O the above thing came out with some random text, apologies, It as meant to read
That’s what happened to me on the 11th Jan, I wasn’t able to get my bond back even though they have had it since April 2011 and didnt deposit into a scheme until after legal proceedings began and the tenancy had ended. This means I now have to chase it up through them and I only have just received the information of the deposit. The judge did award me my court costs but nearly a year without my own money and the sad fact that had I been quicker in complaining while the tenancy was active I would have gotten more. What average thinks about their deposit until they need it back.
Angus – This makes no difference to the position on renewal tenancies. What that position actually is remains unclear. My view is that a renewal tenancy should mean protection of the deposit. But given what the Court of Appeal have done to everything else I considered to be clearly arguable about the deposit scheme law, you’d be a fool to rely on my view…
Nick – if the deposit wasn’t protected and the tenancy is over, yes, it is back to a county court claim. Obviously, this was the intention of Parliament.
My thought is, if you place the claim during the tenancy (because, for example, the Landlord pockets the money spends it on an expensive holiday and thus has none of your money to protect anymore), then I would guess that tenants would have to find alternative places to rent after the 6 months are up. I cannot see them being offered a new tenancy with a landlord they are in the process of taking to Court!
Thus, by starting an action now (within the tenancy) a tenant is not only almost guaranteeing that by the time it gets to Court there is no tenancy in place and lumbered with all their own vast costs once the claim is struck off, but also guaranteeing not to have a roof over their head too by taking the action out within a tenancy!
I would also guess that most tenants don’t check that their money is protected until there is an issue regarding its return and seek legal advice to obtain their money back again (i.e. after the tenancy ends) to find that their landlord has broken the Law and is unscrupulous (and thus, in my opinion, should be penalised for shirking their obligations under the Law but now the tenant can no longer ‘enforce’ the punishment). Absurd position.
What do tenants do that have Court dates for such claims? How do they ‘back out’ without incurring all the costs? Hopefully the tenant would not end up with all the Landlord’s costs as well as their own once cases are struck off by a Court??
A landlord who hasn’t protected the deposit can’t use section 21 so can’t end the tenancy (which remember can only be done by executing a court order) until they do. So that does give some protection to the tenant.
But yes, its pretty useless.
But if you don’t know the deposit isn’t protected when they issue the S21, and only find out after you’ve been evicted and try to get the deposit back, then that isn’t any protection either.
I suppose the only avenue left is that the S21 would have been invalid and therefore that would have been an unlawful eviction? Would that work?
As an update- The Lords second reading of the Localism Bill is on 7 June. This is a likely point for the Government to introduce amendments to change the tenancy deposit protection legislation if they were minded to do so,
Well if any case screamed appeal this does.
Is there any suggestion that this is going to be appealed? Or is it just too early to tell?
The irony is whilst waiting on Tiensia, before issuing a claim a client of mine moved out of the property. Thankfully not issued yet as currently doing pre-action stuff as required by Tiensia.
My understanding is an appeal is being considered, but circumstances are not straightforward.
Moral of the story is that labour’s tinkering with l&t law always leads to tears. 3 times the deposit is a draconian civil penalty unreltaed to damages and payable to a private person. The civil courts don’t like that and have skewered the Act to turn neuter its apparent potency.
A simple tenant notice on the landlord which would have to be served before enforcement would have softened the effect of the Act but it’s not there. Such notices are required before enforcement action can be taken for non-payment of rent or service charges and of course possession proceedings for non-payment of rent. So why not have a reciprocal notice by the tenant on the landlord?
David,
While I agree with you that it is the mandatory three times the deposit penalty which the courts dislike and which has caused them to undermine the legislation I do not think that a notice requirement would have made much difference. As was noted in Tiensia such a requirement already exists under the Practice Direction on Pre-Action Conduct and it is dealt with in costs. I would also note that the notice requirements for non-payment of rent are only required for Housing Act tenancies and the requirement can be waived at the courts discretion so I am not sure that this is a great comparison.
I would also not so much lay blame at the door of Labour but rather say that last minute changes to legislation in the Lords cause this sort of problem. Unfortunately, the possible fix that the current government might well introduce will be done in the same abbreviated manner.
David
While in theory you are right about the pre-action protocol in my experience (I litigate in this area) very many such deposits even when multiplied by 3 do not exceed the £5,000 small claims track threshhold and so costs are hardly a deterrent. Many such claims are also brought by the tenant directly who don’t usually give much thought to costs until it’s too late. In any event a notice required by the Civil Procedure Rules is not the same as it being part of the actual scheme.
As to the Housing Act, most of the issues about deposits concern private AST tenancies. To commence proceedings for possession for non-payment of rent you must serve a s.8 notice. (They don’t rely on pre-action protocols.) This tells the tenant that the landlord ‘means business’ and often spurs the tenant into payment. Even if in theory it can be waived this rarely happens if only because the cost of seeking the court’s discretion far outweighs any benefit.
A notice requirement by the tenant on the landlord about the deposit would have a similar ‘wake-up’ effect. Most important it would prevent the tenant ‘pouncing’ on the landlord as many of these claimants have done. This private penalty is, as far as I am aware, not known in any other area of law except for unlicensed HMOs. Employment law or consumer law which are primarily to protect the weaker bargaining party are good comparisons yet they have no equivalent provisions.
What I find most perverse about the court decisions is the imbalance between landlord and tenant. The Act was clearly created to protect the tenant. Yet the decisions say if you are a landlord you can protect during and after the tenancy, but if you are a tenant you can only bring your claim while the tenancy is in force.
If ever the courts have turned an Act on its head this must be it.
There are other private penalties. The “double rent” penalty for tenants wrongly holding over after giving notice is one example. In employment law there are punitive penalties for failing to consult in redundancy and TUPE situations (calculated as Y times a week’s pay). Infringement of unregistered design right (iirc) carries a “3 times licence of right price” penalty. I am sure there are others.
You are quite right about double rent; it had slipped me. Indeed the courts have greatly restricted when it may be claimed. As for the rest, serves me right for mentioning areas areas I don’t practise in.
The tenant’s counsel seems to have conceded that if the deposit had been paid in full back to the tenant then the tenant could not bring a section 214 claim. Patten LJ then, with some logical sense, asked why should a landlord be in a better position regarding a section 214 claim simply because his tenant had complied with all covenants (and so received all of the deposit back) then if he had a tenant who breached his covenants (and so only received some or none of his deposit back). This argument seems to me to have been given some weight by Patten.
It is possible to see why this would have a certain persuasiveness as an argument. On the one hand it is difficult to see why a tenant should get 3x the deposit as a penalty from the landlord if the landlord has already paid all of the deposit back to the tenant. But, on the other hand, why should a landlord who has (for no good reason) paid no part of the deposit back to the tenant at the end of the tenancy not be subject to the penalty once the tenancy has ended.
The solution to the foregoing conundrum could be found by saying that if the deposit has been paid back in full and the tenancy has ended then neither s.214(3)(a) or (b) can apply so s.214(4) cannot then kick in with the 3x deposit penalty. However, where only part of the deposit has been returned then, absent some other prior final determination (such as a county court determination of what the landlord is entitled to keep of the deposit for the disrepair) the “deposit” (being the balance of the deposit paid by the tenant and retained by the landlord) can still be ordered to be repaid to the tenant (per s.214(3)(a)) and the 3x deposit penalty can be awarded (per s.214(4)) to the tenant albeit on the basis that the penalty is 3x that part of the deposit that has been retained.
Why should the reference to “the deposit” (and not, it should be noted the “tenancy deposit”) in s.214(3)(a) and s.214(4) not be a reference any retained part of the tenancy deposit (as defined in s.212(8)) if some of the initial tenancy deposit has already been repaid? Taking an extreme example, if the landlord repays one pence of the initial tenancy deposit back to the tenant but retains all of the rest save for the said one pence is it still not possible for the court to make an order under s.241(3)(a) once the tenancy has ended?
Following on from my previous post, and re-reading the decision, Patten appears to agree with the analysis in the last two paras of my post save that:
(i) he, rather peculiarly, considered that deposit funds retained by the landlord were not part of the deposit because they were being held pending the determination of a claim for its return; and
(ii) the court must have both alternatives of s.214(3)(a) and 214(3)(b) available to choose between to be able to satisfy the discretion provided by the words “as it thinks fit” in s.214(3).
The (i) point does not make much sense to me. Either the money is being retained to cover unresolved allegations of breach of covenant as a deposit or it is not. The landlord could return the deposit funds to the tenant in full on a WP basis and sue the tenant for the alleged disrepair so there is no absolute need to hang on to any part of the deposit in the specific circumstances. In any event, though, this point will only apply where some funds are retained in the peculiar facts of this case and cannot provide an “in principle” reason for saying there is no claim possible where the tenancy has ended and the landlord retains part of the deposit without any approval from the tenant (tacit or otherwise) pending the resolution of the breach of covenant/disrepair arguments.
Point (ii) seems to be the axis on which the decision was reached by Patten. I, frankly, don’t see the logic of his argument. I can think of many examples of situations where someone as they think fit can choose between one of two alternatives provided and if one alternative is not available they should choose the other. I find it very difficult to interpret the relevant part of s.214(3) in this way. Why put such a strained interpretation on the meaning of “as thinks fit” when a straight-forward literal reading makes sense and accords with the original intention of the Act?
I obtained an order for compensation under s.214(4) last Monday. I wonder, might I turn out to be the last person ever to do so?
“One of the new issues raised by the decision is what is the position if a tenant does what is required by the Court and starts a claim during the tenancy which the landlord ignores and then, as often happens, the tenancy ends before the issue finally appears before a Court. Following the decision in Tiensia the Court should consider the position as at the day the matter comes before them, conclude that the tenant cannot make the claim, and would then presumably strike out the tenant’s case. I am not sure if the Court would award the tenant costs in this scenario. This would be a totally ludicrous outcome.”
This is the exact situation I’m left in now. I’ll be condemned to live in the flat and pay the tyrant rent until a court case hearing and any appeals have taken place. To get my deposit back and see justice done will mean paying thousands of pounds to the person whose causing me all this stress in the first place.
As I understand it, should the landlord pay the money into the scheme at the last minute, even during one of our appeal trials, the case would have to be thrown out. Is that right?
How can they become senior judges without a grasp of logic and reasoning, while inexplicably lacking any strong sense of what justice is meant to offer in the first place.
Whatever happened to commonsense?
To play a little with circumstances.
What would be the case where a tenant informs the landlord that he is going to issue a claim for the deposit and then issues.
But before the hearing the landlord unlawfully evicts the tenant?
Surely then the deposit claim must fail. Yes there would be another claim for unlawful eviction but the landlord has avoid liability under the Act by doing another unlawful act.
The decision lacks any commonsense when applied to the real world (which contains a lot of people both landlord and tenant who have no idea about housing law)
I haven’t really thought this through, but it strikes me that the ex-tenant would have a very good claim for exemplary damages in this sort of situation.
The unlawful eviction does not end the tenancy. So there is still a relationship of landlord and tenant. How else can you plead for re-entry?
But if no application for re-entry injunction? If the tenant doesn’t want to go back?
Not hypothetical, as I know someone running a case in exactly these circumstances at the moment.
Right now my son has a claim going through. On the 8th June we had a case meeting where the Judge was going to strike out the claim because it had been served late, I was his lay representative and argued that it was the court who had messed up and served it late -the landlords solicitor was there and quite agressive, we won and were granted permission to precede. Only to find this ruling. He is not a tenet and has not had any of his deposit back. The claim came about because the Landlord wanted to keep, a large amount of the deposit for repairs. We used what we thought was the correct procedure to use the DPT as an arbitrator and wrote to him advising him of this and requesting DPT details, he had a letter back from his solicitors saying that they would be in touch, nothing else came, so he issued a claim as we were sure that a DTP was not used. So now he might be facing the landlords expenses – at 21 and with no job.
Steve
Steve, we can’t comment on individual’s situations, I’m afraid, but as a general point, this ruling does not affect claims for the return of the deposit, although it would stop a claim for the 3 x penalty under HA 2004. (The claim for the return of the deposit would not be a claim under Housing Act 2004, though).
In effect it returns people to the position before the Housing Act, where they had to bring a small claim (if under 5K) for the deposit. The LL would then have to justify any deductions in evidence. Of course, this was exactly the situation that the HA 2004 was meant to rectify…
Did the law change? I am trying to work out if I should pursue a claim or not. The agent witheld £160 of my £475 deposit and when I checked the ref on TDS website it wasn’t recognised. I contested this with the agent, and have written correspondance. I also believe that there has to be written consent by both parties if deposit witheld, and there wasn’t. I was just handed a cheque with a letter stating reasons why, which I contested. After a lot of arguing with the agent, they said forget everything they said, just return a grill pan which they said was missing and they would give me back my money. But there had NEVER been any mention of a missing grill pan until that point, and I did not have the grill pan. So it all came to standstill. TDS now won’t get involved as I spent 6 months arguing back and forth so am now out of time, something I didn’t know until now. Also, I left because the agent gave me notice under section 21 — so if deposit wasn’t really in the scheme, but only registered intent, does that mean it was unlawful?
Brenda, we can’t offer advice on individual’s matters through the blog, I’m afraid. I suggest seeking advice from a CAB housing specialist or Shelter.
The law did change on 6 April 2012 but if your tenancy finished before then, the change will not affect you.
NL.
Whilst the tenancy may have ended, if the deposit isn’t protected by the 6th MAY (+30 days after implementation), will the new legislation apply?
If the new law doesn’t apply to tenancys that have ended, should a claim merely apply for the return of the deposit and forget about any penalties?
We’ve also discovered that effectively, any bad landlord would do well to simply ignore the deposit protection legislation entirely. They can deduct substantially more from the deposit than if they had to justify it to the dispute resolution service, and can hang onto it in its entirety until the case finally comes before the court – or pay it back with deductions shortly beforehand, by which time the tenant will be in such dire financial straits that they will have to accept the deductions, however unfair they may be.
Our landlady has not protected the deposit in spite of us asking her to on several occasions. We made the mistake of thinking that the legislation would still protect us if she had not protected it by the time we moved out – it seems highly confrontational to try and sue your landlord while you’re still in the property, so we stopped short. She is now quibbling about the size of some carpet stains, and refusing to hand back the entire £2400 on that basis.
What happens if a tenant claims they didn’t have all the AST agreement which clearly states no deposit taken but a claim for a discretionary housing payment was made but the landlord simply treated it as rent in advance
Eh? I’m not sure I understand. But a DHP taken as rent in advance isn’t a deposit if it is treated as rent in advance.
Hi Giles, the council say they sent the payment as a deposit but they confirm twice that they only have the first 2 pages that doesn’t contain any of the particulars ie dates, price, how the rent is paid or if there is a deposit ?
This isn’t a legal problem, it is a problem of evidence!
Hi giles, what evidence do you think I would need to produce?
No idea. No idea what you are trying to do. This is not something we can advise on here. You need to get advice.
Ok thanks
Has there been any change since Gladehurst Properties Limited v Hashemi? I can’t see any legislative change and I’m not aware of any Court of Appeal/Supreme Court ruling dealing with claims after the end of a tenancy? Or am I missing something?
The Localism Act amendments to HA 2004 addressed the end of tenancy issue. Added a new s.214(1A) to make clear claims can be after end of tenancy.