Okadigbo & Anor v Chan & Anor  EWHC 4729 (QB)
When awarding a penalty for breach of the Section 213 Housing Act 204 requirements for tenancy deposits, the court has a discretion over the amount of penalty under section 214
“(4) The court must . . . order the landlord to pay to the applicant a sum of money [not less than the amount of the deposit and not more than] three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order.”
There are no statutory factors set out for the exercise of that ‘between 1 and 3 times the amount of the deposit’ discretion.
So, what factors can, or should, a Court consider?
This was a counterclaim for a deposit penalty in a claim for possession and arrears of rent. At first instance, the Circuit Judge had found a breach of s.213 and had awarded the tenants, Mr O and another, a penalty of one times the deposit.
The tenancy had started and the deposit received on 1 August 2012, for a 12 month term. The deposit was protected, but not until 5 March 2013, and the prescribed information was provided later still, on 8 July 2013. The breach by way of late protection and late service of the prescribed information was admitted.
The Circuit Judge’s reasoning for the size of the penalty was:
“the Defendant seeks a penalty pursuant to Sections 213 to 215 of the Housing Act 2004. Section 214(4) provides that in the event of a breach, and here the breach is admitted, I must award the Defendant a sum of money not less than the amount of the deposit and not more than three times the deposit. The Defendant contends for the maximum sum which would be three times £1,520, a sum of £4,560. The Claimant contends for one month’s rent in the sum of £1,520. I find that the Claimants are not experienced landlords, that this is the first time that they had let out any property and that they were letting out their home. That they quite properly put the matter in the hands of professional managing agents who let them down by not complying with the terms of the Act. I find this case to be at the lowest end of the scale of culpability for non-compliance. And for those reasons I award the sum of £1,520.”
The tenants appealed to the High Court. Their argument was that the Judge exercised the discretion wrongly, placing undue weight on the inexperience of the landlords when set against a serious failure to comply with the deposit requirements for a considerable period of time.
“He [Counsel for the appellants] recognised realistically that there was a degree of mitigation in that the breach had been admitted and that there was in the event full compliance, albeit only after a period of delay. He contended that the discretion of the judge should, therefore, be set aside and that the appropriate order would be a multiple of twice the appropriate amount of rent.”
The High Court dismissed the appeal.
“The judge was entitled to regard the question of culpability as the most relevant factor in determining what order to make and was entitled to find that the culpability in this case fell at the lowest end of the scale for the reasons which she gave. It is not as if the breach was uncorrected and therefore, although the appellants were lacking the protection for a period of some months, in the end matters were put right.”
I suspect this will not come as a surprise to any of us, except possibly the appellants in this case. There is effectively an unconstrained discretion for the court, within the 1 to 3 times penalty, and culpability of the landlord (or agent), together with protection prior to the tenant raising the issue, was always going to be a factor.
Though if it was the agents handling the deposit, I would have though that the tenants could also have brought a claim against them, as ‘the person who appears to be holding the deposit’. (Draycott & Draycott -v- Hannells Letting Limited  EWHC 217 (QB) ). And professional agents messing up in this way could surely expect far less generosity in the exercise of the discretion. Likewise, experienced landlords.
That said, it may be that the High Court places too much emphasis on the deposit having been eventually protected. As we noted back in the pre Localism Act days of Gladehurst v Hashemi, the purpose of the legislation was indeed to punish landlords who did not comply. The Localism Act amendments made clear that late protection was not adequate. But it is, clearly, open to the court to decide that the punishment could be restricted to a 1x deposit penalty on the basis of findings on culpability.