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.