By D
17/12/2014

Of Penalties and Possession

Charalambous & Anor v Maureen Rosairie Ng & Anor [2014] EWCA Civ 1604

The Court of Appeal has again thrown the cat among the tenancy deposit protection pigeons.

In Charalambous it had to grapple with the, admittedly fairly rare scenario, of a deposit taken entirely before the tenancy deposit protection schemes came into force where the tenancy had become periodic also prior to the protection schemes coming into force. To be clear in Superstrike v Rodrigues the deposit had been taken before the schemes came into force but the tenancy had then become periodic after the schemes came into force. Following Superstrike most commentators, me included, took the view that as there had been no receipt of the deposit during the time in which the tenancy deposit protection rules were in force there was no issue. Clearly we were wrong, at least LJ Lewiston who gave the sole decision thinks so.

Facts
Here N had given a tenancy which commenced in August 2002 for a fixed terms of one year. It was renewed for a further year in 2003 and 2004 then from 2005 became a statutory periodic tenancy and remained so. A notification under s21, Housing Act 1988 was served in October 2012. It was held valid at first instance and the tenants appealed.

Financial Penalties
There was no suggestion by the Court that the landlord was liable for any of the financial penalties. It was argued for N that she was not liable for the penalties under s213 and s214 and that the law should not be interpreted in such a way as to suggest that Parliament had intended that those penalties should apply to N immediately on the legislation coming into force. There was a fair bit of discussion here as to the nature of retrospective legislation. The upshot of this is that the Court made clear that retrospective legislation is possible but it must be clear that this is what Parliament intended.

S213 or S215
The Court resolved this issue by agreeing that s213 did not apply here as the deposit had not been received by the landlord at a time when the legislation applied. Accordingly, Parliament had not applied any form of retrospective penalty. However, the Court did not accept the follow on argument that s213 and s215 were inextricably linked such that a landlord could only be liable for penalties under s215 if they had fallen foul of s213. This is an interesting point. It is accepted that a landlord can be liable for penalties under s213 where they are not liable under s215 if they have acted to rectify their mistake in one of the ways permitted by s215. However, the Court has now created the converse situation. It looked closely at s215 which now reads:

215 Sanctions for non-compliance

(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.

(2A) Subsections (1) and (2) do not apply in a case where—

(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or
(b) an application to the county court has been made under section 214 (1) and has been determined by the court, withdrawn or settled by agreement between the parties.

The Court made much of the phrase “at a time” in s215(1). It held that this phrase meant that there might be “a time” when the requirements of s215(a) or (b) had not been complied with even if there was a previous time when they had been. Additionally, it held that the two obligations in s215(a) and s215(b) were disjunctive. A landlord had to meet both of them to avoid the penalty applying. There was some discussion about whether the landlord had met the requirement in s215(b) but the Court declined to rule on this definitively as it was not required. It indicated that if it had to rule it would probably have concluded that the requirement in s215(b) had not been breached as N was not obligated to protect the deposit under s213. However, the Court ruled that the requirement in s215(a) was breached because the deposit was not being held within an authorised scheme. Accordingly, therefore it took the view that the notification served by the landlord under s21 could not be valid because of the clear restriction in s215(1) and the fact that the landlord had not been able to rely on any of the savings found in s215(2A).

Retrospection and the Order
The Court drew further support for its conclusion on the main point and on the retrospective penalty argument from the wording of the Localism Act 2011 (Commencement No. 4 and Transitional, Transitory and Saving Provisions) Order 2012. This brought the amended tenancy deposit provisions provided by the Localism Act into force on 6 April 2012. However, a provision contained in Article 16 of that Order which held that the amendments would apply to any assured shorthold tenancy “in effect on or after 6th April 2012”. The Court found that it was clear from this provision that Parliament fully intended at the time of the Localism Act being introduced, if it did not before, that there should be a degree of retrospection about this matter and that the penalties should bite to some degree on all tenancies then in existence. It gained yet more support from this because the Article gave a “grace period” for landlords to resurrect their position of 30 days from 6 April 2012 when they could place a tenancy deposit into an authorised scheme.

I should mention that the Court appeared to indicate that it would have taken the same view irrespective of whether it was considering the law under s213 and s215 as originally enacted or whether it was considering the law, as it was, after amendment by the Localism Act 2011.

Deregulation and Amendment
Interestingly, the deposit legislation is in the process of being amended (again) by way of s30 of the Deregulation Bill which has recently finished its committee stage in the Lords. This inserts new sections 215A to 215C into the Housing Act 2004 primarily to resolve issues caused by Superstrike. Initially I though that this might also resolve the problems in this case. Unfortunately it doesn’t. As the Court of Appeal itself noted the Deregulation Bill changes do not fix this situation. S215A which has the potential to resolve the issue does not resolve this issue because it only protects landlords where a deposit was taken prior to the introduction of the tenancy deposit legislation (s215A(1)(a)) and the tenancy became periodic “on or after” 6 April 2007 (s215A(1)(b)). The Court of Appeal has pointed out that the vehicle is there to fix the issue. From my reading of the Deregulation Bill changes the fix is actually easy. If the wording of s215A(1)(b) is altered so that instead of beginning “on or after” it begins “before or after” that would resolve the issue immediately. Whether the government will do this remains to be seen. I don’t doubt that there will be lobby groups encouraging them strongly to do so.

Comments
One other side point worth noting is that in the past there has been some doubt as to what the situation is if a landlord protects a deposit with a scheme but, due to the landlord no longer paying he scheme membership fee for example, that protection terminates. Arguably the penalties under s213 and s214 do not bite because at the trigger event, the receipt, the landlord had dealt properly with the deposit and there does not immediately appear to be an ongoing obligation in those sections. However, it is clear from this decision that the penalties under s215 would bite and a landlord would not in that case be able to serve a notification under s21.

For those (relatively) few landlords breathing a sigh of relief because they see themselves as not being captured by Superstrike this will be a worrying decision. They will not be caught by the financial penalties but they will now have to return the deposit or protect it in order to avoid being unable to recover possession of their properties using the powers provided by s21, Housing Act 1988.

As a final aside this decision also means that the decision in R(Tummond) v Reading County Court must be incorrect.

Appeal allowed, possession on notification under s21 set aside as the notification is invalidly served.

D is a solicitor specialising in landlord and tenant matters with a London firm.

23 Comments

  1. Romain

    The wording of the Localism Bill’s commencement order has been casting doubt since the very beginning and, in my view, was bound to bite at some point.

    Reply
  2. Peter Williams

    Excellent article. Many thanks. Are landlords in this position still able to protect the deposit, or are they now outside the permitted window (“grace period”) allowed for registration ?

    Reply
    • David Smith

      Good question. This is a point which is not totally clear. You can certainly avoid the restriction in s215(a) by protecting the deposit. However, the restriction in s215(b) may not be avoidable in this way. The Court specifically declined to rule on that point as it was not argued before them and was not relevant. They suggested that you probably can though.
      So the safest course is to return the deposit but protection (albeit very late) may work.
      Or you can hope the government makes a rapid change to the Deregulation Bill!

  3. Tim Hall

    Is this of any relevance to discussions of the intent of the legislation?

    The governments own advice page for Deposit protection clearly states “Your landlord must put your deposit in a government-backed tenancy deposit scheme (TDP) if you rent your home on an assured shorthold tenancy that started after 6 April 2007. In England and Wales your deposit can be registered with ….:”

    The web address https://www.gov.uk/tenancy-deposit-protection/overview – this was last amended in November 2014.

    Surely this makes it clear that the Act was not retrospective with regards to deposits taken before 6th April 2007.

    Thoughts …….

    Reply
    • Giles Peaker

      What the Government page says is neither here nor there. They don’t get to say what the legislation means.

    • David Smith

      I am quite sure this is not what the Government intended. They were actually warned of the consequences of the Order in 2012 by me via a tenancy deposit scheme. They dismissed it and refused to accept that interpretation of the law. However, as Giles says the views of Government and the will of Parliament as interpreted by the Court are not the same. parliament has the chance to clarify its position in the Deregulation Bill if it is minded to.

    • Romain

      Anything on gov.uk should be taken with a (large) pinch of salt. The fact that it is a government site can give a false sense of authority when, as Giles and David said, there is none.

      Gov.uk is simplified to the extreme to make it clear and easily understood by anyone, but in doing so it also gives the impression that things are simpler than they are, and sometimes it is just wrong.

  4. Tim Hall

    Yes I appreciate that the courts explain what legislation means, but surely the government’s explanation of how the act should be interpreted still has to carry some baring.
    My belief was that, unless made absolutely clear in legislation, it should not be considered to be retrospective and, combined with the explanation from the government, I find it incredible that the appeal judges have decided to make it so.
    If the trigger event is when the deposit was received,. clearly it was received before any of the legislation came into force, and if the Localism Act did give a degree of retrospection it could only possibly be back to the 6th April 2007 when the Tenancy Schemes order came into effect.
    It is clear the Localism Act was not new legislation, just amendment to the existing legislation, and as such surely the 30 day grace period would only apply to those tenancies where deposit protection was required under the 2004 Act?

    Reply
    • Giles Peaker

      Tim, the view of the Government has no bearing at all, I’m afraid. If they want to change the law, then it goes through Parliament.

      If you consider David’s post, the ‘retrospective’ point was addressed by the Court at some length. The court is clear that it is not imposing a ‘retrospective’ law, but that the relevant wording of s.215(1) applies to the present moment. So the ‘trigger’, if you like, is the failure to have either returned or protected the deposit when serving a s.21.

  5. Romain

    Reading the judgement, it seems that the court cautiously avoided discussing whether the penalty applied since the question at hand was just whether the section 21 notice was valid.

    However, I think that they made rather clear that the Commencement Order made the amendments apply retrospectively to all ASTs, even those created before 2007, as described by David in this article.
    Although an argument, as quickly alluded by the court, is that amendments may only apply to tenancies which were already subject to the original wording.

    Thus, in my view the issue is not resolved and the court is seemingly giving the opportunity to the legislator to settle it.
    With the Deregulation Bill “the opportunity is there” (dixit LJ Lewison in the judgement).

    Reply
    • Giles Peaker

      The penalty does not apply, according to the judgment. See para 18 and the start of para 22. S.214 penalty kicks in if s213(3) or s213(6) was not complied with – ie the requirements to protect and serve PI within 30 days of receipt. There was no requirement to do either when the deposit was received, or the stat periodic arose as pre April 2007. So the penalty part is backward looking. The s.21 part in s.215 is cast in present tense, so is different. That was the Court of Appeal’s view, anyway.

    • Romain

      The way I read it, they do not say the the penalty does not apply, they stay well clear of making a decision on that.
      In addition, s.214 penalty does not only kick in if s.213(3) and s.213(6) has not been complied with: there are 2 cases, one of which is that the deposit “is not being held” (present tense) in a scheme (though I suppose the argument is to then protect the deposit before the case is decided by the court).

      IMHO, para 25 is interesting here:
      “The amendments will apply to tenancies in existence on 6 April 2012. Its concern is not with the date at which the deposit was received, but with the date on which the tenancy was in effect. Since the amendments made by section 184 include amendments to section 215 (1) itself, it must have been envisaged that section 215 in its amended form would apply to all such tenancies.”

      Well there are amendments to s.213 and s.214 as well…

    • Giles Peaker

      Not if you look at s.214, as amended (or in the original). An application can only be made if 214(1)(a) or (b) applies. (b) is irrelevant here. So it is only (a) which reads
      that section 213(3) or (6) has not been complied with in relation to the deposit,
      213(6) is providing PI within 30 days of receipt. There was no prescribed info required at the time.
      213(3) provides:
      (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.
      So, 214(1)(a) only applies if no compliance with requirements of scheme within 30 days of receipt of deposit. As there were no requirements of a scheme on receipt, or when the tenancy went stat periodic, no penalty under s.214.

    • Romain

      Point taken re. s.214.
      In my view, though, this does not solve the issue of the commencement order and how it could affect s.213 compliance.

      In the judgment, para. 22 states that s.213 could not have been complied with “at the time” the deposit was received, which is not disputable.
      However, the Localism Act and its commencement order later appeared and para. 25 suggests something about that (as quoted in my previous post) along with para. 26:
      One argument is that the problem of potential retrospectivity is dealt with by the Order. Article 16 (2) confronts head on the problem about timely compliance with section 213 (3). It does so by giving the landlord a prospective window in which to comply.
      A counter argument is given in para. 28 but the issue is not settled.

      Thus I am not convinced (perhaps I worry too much) that the door has been closed on the issue of the penalty.

      The bottom line is that it would be very welcome indeed if the Deregulation Bill could remove all doubts and explicitly settle all these issues

    • Giles Peaker

      Ah, the argument that the Article 16 transitional provisions caught all pre 2012 tenancies, including pre 2007, thus creating the need to protect within 30 days of 6 April 2012 Yes, been tempted by that one myself. When I heard of this case, I thought it might be relying on just that point. That will indeed have to await another case. However, thinking about the wording, it isn’t clear that it creates a fresh need to protect. If it doesn’t, then s.214 would still not bite. – The amended provision of s.213 is still ‘comply with requirements within 30 days of receipt’. But there has been no fresh receipt.

    • Romain

      Indeed there has been no fresh receipt.
      However the argument (as per the judgment, but it has been discussed since 2012) is not that there has been but rather that s.213 applies retrospectively, as per wording of the commencement Order, and that landlords were given a 30 days grace period to protect the deposit in 2012 in order to be able to avoid being caught.

      They really ought to rewrite the statute clearly and concisely from scratch…

    • Giles Peaker

      Yes, but follow it through. The Commencement Order Art 16 says that the amended HA 2006 clauses apply to all pre-April 2012 tenancies, yes, (except where deposit protected by 6 May 2012). So, of course, there is an argument that s.213 and s.214 as amended apply to a pre 2007 deposit that was not protected by May 2012.

      But all that does is mean s.213 ‘comply with initial requirements within 30 days of receipt’ applies – the point being that there were no initial requirements of a scheme at the time of receipt. So the s.214 penalty does not bite retrospectively to pre 2007 deposits (unless Superstrike applies, obviously).

    • Romain

      No, the argument is that, because of the Order, s.213 applies retrospectively to all the tenancies and that the requirements of a scheme had therefore to be complied within 30 days of receipt.
      Post-2007 tenancies had the possibility to comply at the time of receipt and, obviously, pre-2007 tenancies had not, which is the issue.
      But that is all taken care of and no tenancy is at a disadvantage because the Order gave all tenancies a 30 day grace period in order to comply and be safe.

      If the Order had not given such grace period the argument would indeed not hold water since pre-2007 had no way to comply, however by giving this grace period the argument that it should be interpreted as above exists and is not settled at the moment.

      That’s how I read LJ Lewison’s comments in the Judgement, at least.

  6. chris lowry

    Do we think Lewison LJ might be trying to make amends for his ‘car crash’ decision in Spencer here?

    Reply
  7. Giles Peaker

    Romain

    Yes, I agree on the Commencement order so far as s.215 goes. As the judgment notes, it lends weight to the retrospectivity point.

    But it makes no difference to the s.214 penalty point. An opportunity to comply is not a requirement to comply, or a fresh ‘receipt’, so it remains that there is no breach of s.213(3) such that s.214 would be triggered.

    Reply
    • Romain

      If the Order makes the amendments and the amended sections apply to the tenancy then s.213 applies to it. Thus the landlord is obviously in breach since he did not comply within 30 days of receipt (even if that happened before 2007).
      As such he is in breach and liable for the penalty unless he protected the deposit in 2012 as the Order required him to so as to avoid that penalty.

      That would clearly be wrong, and thus probably not what was meant, if the Order had not offered the grace period, but it did and so made the situation unclear.

      To me, that’s the argument discussed since 2012 and mentioned in the Judgement, and which is not settled yet.

    • Giles Peaker

      No, failing to protect within 30 days was not a breach before 2007, and still would not be a breach even if the commencement order meant s.213 applied to ALL pre 2012 ASTs. Because of the wording of s.213 and s.214

      The relevant requirement for the penalty of s.214 in s.213 is to comply with the initial requirements of the Scheme within 30 days. Not protecting in the pre April 2007 period can’t be ‘not complying with the initial requirement of the scheme’ because there were no initial requirements. So they were complied with.

      Again, as this case shows, it is all about the precise wording of the Act, and you aren’t reading it.

  8. David

    Talking of wording I think this is an error in your article

    “initially I though that this might also resolve the problems”

    should be

    “Initially I thoughT that this might also resolve the problems”

    Reply

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