This is a slightly surprising case involving a judicial review of refusal of permission to appeal.
T was an Assured Shorthold Tenant of a property. His tenancy began on 18 December 2012 and was for 6 months. He paid a deposit as is common. The deposit protection certificate stated that the tenancy began on 20 December and that the deposit was paid on 22 December. The report does not comment on this inconsistency so we can only assume the court considered the date discrepancies to be irrelevant. The deposit was actually protected on 2 January 2013. Therefore within the 30 days required by the Housing Act 2004 (after the Localism Act 2011 amendments). The tenancy agreement was a little outdated and unhelpfully stated that the deposit would be protected within 14 days but this did not form the subject of the appeal. Also on 18 December 2012 the landlord served the tenant with an s21 notice under the Housing Act 1988 to end the tenancy at the end of the 6 months. Therefore this notice was served before the deposit was actually protected. Proceedings for possession were duly commenced at the end of the 6 months and a possession order was granted. The tenant sought permission to appeal on the basis that the deposit was not protected at the time the notice was served and therefore it was invalid. That permission was refused. On that basis the only recourse was to seek judicial review of that decision and this is what happened.
I am not going to discuss the review substantially as it is well outside the scope of this blog. Basically, the High Court held that the decision to refuse the appeal was correct. It may have been wrong in law but it was not procedurally irregular. The arguments were considered and rejected with proper reasons being given. Therefore the fairly high threshold of exceptionality which justifies overturning a refusal of permission was not reached. The case is instructive in giving a good summary of this area of law but I am not going to repeat the analysis here.
The Deposit Issue
Why this case is interesting from our viewpoint is that the judge went on to consider the actual grounds for appeal in case it was found that he was wrong as to the exceptionality point. It is this that is interesting. It has been a common belief (including by me) that the upshot of the deposit protection legislation was that it was not possible to serve an s21 notice during the first few days of the tenancy until the deposit was actually protected. The relevant parts of the legislation are:
S213(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 30 days beginning with the date on which it is received.
S213(6) The information required by subsection (5) must be given to the tenant and any relevant person–
(a) in the prescribed form or in a form substantially to the same effect, and
(b) within the period of 30 days beginning with the date on which the deposit is received by the landlord.
and the relevant penalty provisions:
S215(1) Subject to subsection (2A), if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when–
(a) the deposit is not being held in accordance with an authorised scheme, or
(b) section 213(3) has not been complied with in relation to the deposit.
(2) Subject to subsection (2A), if section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.
The Court identified that s215(1)(a) appeared to help the case for T on the basis that at the time the s21 notice was served the deposit was not held within an authorised scheme. However, the Court took the view that the wording of the title to s215 was important. This section is titled “Sanctions for non-compliance”. As the Court pointed out there was no time during which the landlord was not compliant with the requirements of the law. The deposit was protected and the prescribed information served within 30 days. Therefore the landlord had complied with the requirements and so it appeared that this section was not directed at her. If the Court was to take this view then that would suggest that the penalties (including the financial) ones would apply to any landlord during the period between taking the deposit and protecting it.
Notably the Court also made much of the clause in the agreement that said that the landlord would protect the deposit within the set period with an approved scheme. The Court held that this showed she intended to be bound by the schemes and that she was contractually obliged then to protect the deposit. She was therefore holding the deposit within the rules of an authorised scheme and this was sufficient to comply with the legislation. T argued that to deal with it this way meant that there was a form of intent being added to the test which the Court did not accept.
Accordingly the application was dismissed.
This issue of intent and clauses is a really serious issue and a bit of a flaw in the Court’s reasoning really. First, if one is relying on the clause in the lease as creating a contractual obligation to protect then the landlord may have breached it. The clause was an older one which pre-dated the Localism Act changes and it required protection within 14 days. This had not occurred if the deposit was in fact paid on the 18th as the tenant asserted. Second it, does as T said add a sort of intent element to the situation which is wholly inappropriate to a non-criminal penalty. Getting round this issue, as the Court did, by saying that the contract created a holding is artificial. The entire position is now one of intent. If a landlord takes a deposit and protects it outside the 30 days can they say that an exchange of emails which said they would protect it is sufficient to amount to a holding and therefore avoid the penalty? Or does the protection provided only amount to a mirror of the statutory position. It also leaves open the issue of s21 notices at the start of a tenancy in a truly odd manner. I think from the judgement that one can only serve an s21 notice prior to protection if there is a clause in the agreement which states that the deposit will be protected. But if the landlord then fails to protect the notice will still have been served. I cannot see that the service would be retroactively invalidated by that later contractual breach. I am afraid I have to stop there as my brain is now hurting!
Of course all this reasoning is technically obiter and so could be ignored but I do wonder how this will now play out in the County Courts. I do have some sympathy for the judge here as he was, as we have seen before, trapped by some truly awful drafting. However, I am a little unsatisfied by this whole case and cannot see that it helps an already confused situation much. It may be that the Court of Appeal will step in and sort it all out but I suspect they will simply avoid discussing the deposit legislation at all leaving this issue in a form of limbo.