How late it was, how late

Khuja v Chowdhury [2015] EW Misc B18 (CC)

A County Court deposit protection case, and an illustration of some of the ways in which landlords still haven’t figured out how the deposit rules work.

Ms C was the assured shorthold tenant of Mr K, allegedly a ‘major landlord in Oxford’. The tenancy started on 7 July 2011. Ms C paid a deposit in June 2011 of £800, though there was then some confusion about rent payments not being recorded to the account, or not received. Mr K tried to argue that this meant a deposit was not received until some time later, but the Court found otherwise. The deposit was protected but not until June 2013. It was then re-registered in February 2014.

In 2014, Mr K got Ms C to come to his office to sign a deposit protection certificate. He then  apparently immediately served a section 21 notice and issued possession proceedings. Those proceedings were dismissed on the ground that the s.21 was invalid due to Mr K’s failure to serve the prescribed information before service of the notice. The judgment in that case recorded that Mr K had subsequently served the prescribed information, annexed to a witness statement.

Mr K then served a section 21 and issued the present proceedings. Ms C defended on the basis that the deposit had been protected out of time – outside the 30 days from receipt – and the deposit had not been returned, so the s.21 was invalid under s.215(1) Housing Act 2004. Ms C also counterclaimed for a penalty under s.214.

Mr K raised two initial issues, both of which do rather give away that Mr K was acting in person:

the Defendant could not raise the Defence she had because matters had already been dealt with by Deputy District Judge Drayson [the 2014 case]. I rejected this argument, because the issue in that case concerned the giving of prescribed information, which it was accepted had not been given. But in this case, the Court is concerned with whether or not the section 21 procedure can be used where the deposit was not protected within the relevant time period.

 Secondly the Claimant said that I could not hear the counterclaim, because the Defendant ought to have made a separate application to the Court. I considered the relevant rules, and noted that District Judge Payne had the Defence before him when he directed the matter to be listed for hearing. It was open to the Claimant when he received that order to apply to the Court to strike out the Defence, or otherwise vary the order so that the Counterclaim be heard separately, but he did not do so. He had been invited by District Judge Payne’s order to file evidence, which could have responded to the Counterclaim, but he did not do so. He was not taken surprise by its contents. The arguments in respect of the Counterclaim are very closely connected to the arguments in respect of the Claim. For all those reasons I concluded that it was appropriate and proportionate to hear the Counterclaim at the same time as the claim for possession.

The Court found that the deposit had been received in June 2011 and protected in June 2013, so outside the 30 days. The deposit had not been returned as per s.215(2A)(a).

Mr K argued that:

he had offered to pay £800 at the last hearing (which is not disputed) and the tenant had refused to accept it (also not disputed). However, I do not accept this is equivalent to the money having been paid within the meaning of the statute. On behalf of the Defendant it was said that she did not have the opportunity to take legal advice and the basis upon which the money was being offered at that time was not clear. Had the money been offered to her subsequently, she says that she would have accepted, but it has not. Between then and the hearing before me, the Claimant did not make any further offer to pay the deposit back, or send a cheque to the Defendant. He did reiterate the offer in Court.

There is no evidence that the Defendant unreasonably refused the money at the hearing, or that that she has since deliberately refused to accept the return of her deposit in order to avoid possession proceedings.

So the deposit had not been repaid. The s.21 notice was therefore invalid as it could not have been served and the possession claim failed.

On the counterclaim, being a post Localism Act claim, it did not matter that the deposit had belatedly been protected. S.214(2) required the court to make an order, but an order that the deposit continue to be protected was not one of the options (either pay the deposit into a scheme or return). Therefore the court must order the return of the deposit.

So far as the payment of a sum between one and three times the amount of the deposit is concerned, there is only one reported case about how the discretion should be exercised; Qkadigbo [Okadigbo v Chan [2014] EWHC 4729 (QB) – our report. Incorrect case reference number in this judgment]. The conduct of the Claimant is to be assessed. At one end of the scale will be cases where there has been a failure to protect a deposit through no fault of the landlord, and the time limit has been missed by a very small amount. At the other end of the scale will be cases where there has been a flagrant disregard for the rules, and the deposit has been dissipated in some way.

This case in my judgment falls somewhere between the two. The landlord is a professional landlord and the rules about deposit protection have been in force for many years now, including the changes incorporated by the Localism Act. He has no good reason not to be fully aware of his responsibilities. His own company manages the property, so he cannot blame an agent. Although he has sought to suggest that he did not know he had the deposit until June 2013, and is being punished for his own leniency in giving his tenant the benefit of the doubt, I do not find that position to be consistent with the evidence. It is clear that he did receive a deposit before his tenant moved in, and it was his responsibility to have the systems in place to ensure that it was protected within the relevant time. On the other hand, the deposit did become protected eventually, the prescribed information was given, and he is in a position to pay it back. I am satisfied there has been no dishonesty.

In the circumstances, in my judgment this case falls in the middle of the range, and I therefore make an award based on twice the amount of the deposit and shall give judgment on the counterclaim for £1600.

And with a reminder that the previous s.21 was not retrospectively review by the return of the deposit, that was that.

It is worth noting that as the deposit was protected after the ‘initial term’ of the tenancy, the Deregulation Act 2015 changes would make no difference to the scenario in this case.

It is interesting, if perhaps unsurprising, to see a view emerging that the 3x penalty requires ‘dishonesty’ or perhaps a continued failure to protect. A 2x penalty would look to be the most likely outcome for most landlords who ‘ought to have know’ the deposit should be protected.

Thanks to Caroline Crawford of Shelter, who was Ms C’s McKenzie friend for pointing us to this case.

 

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Assured Shorthold tenancy, Deposits, Housing law - All, Possession.

27 Comments

  1. I was Claimant in a DP case earlier this year.

    On the day, I reached a settlement with the Defendant for 2 X deposit compensation plus return of deposit and i am glad i did now.

    My deposit had been unprotected for years and the Landlord din’t give a hoot, but it might have been a step too far to expect a judge to order 3 times.

    There is almost always a flagrant disregard for the rules if a deposit hasn’t been protected and it shouldn’t be in question for an experienced Landlord who ought to know their business.

  2. On the offer to return the deposit. Is there a requirement that the tenant accept the return?

    It’s a requirement of the tenancy that a deposit be given then it must require the consent of both parties to amend that agreement.

    However is it reasonable to suggest that the Housing Act 2004 has made it so that a landlord can unilaterally return the deposit and amend the term?

    And what amounts to a return? A cheque could bounce or be cancelled before it clears when is the return effective and what if the tenant never cashes the cheque?

  3. Thanks for the guidance on the court’s discretion in deposit protection cases: I hadn’t spotted it previously. I have had orders for 3 times for tenants quite frequently. It hasn’t always involved flagrant disregard/dishonesty etc but has always involved total failure to protect (and thus of course to serve P.I.).

  4. Pingback: How late it was, how late – Nearly Legal | Current Awareness

  5. I always ask for 3 times the deposit and leave it to the judge to decide what amount fits the crime so to speak
    I have been lucky enough so far to have landlords and lettings agents (yes even letting agents are still openly not protecting) are settling out of court for substantial amounts

  6. Hi,
    Quick question – I moved into a house under a AST in November 2013. Paid deposit, but never received any PI subsequently. (However, I am certain the deposit is protected).

    Signed a new AST in November 2014 – new contract has page titled “Prescribed Information”

    Could S21 legally be served around Sep 2015? (2 months prior to end of AST)

  7. What interests me about this case is that it is the only case I have come across that touches on the issue of return (and acceptance) of the deposit.

    I understand that Section 214(3) gives the courts discretion when hearing a compensation claim to order the return of the deposit, in which cases a judge will of course (or at least should) exercise their discretion reasonably.

    I am interested in situations where landlords attempt to return the deposit outside of litigation, but the tenant refuses/frustrates those attempts. The judgement in this case implies that tenants cannot unreasonably refuse such an offer – “There is no evidence that the Defendant unreasonably refused the money at the hearing, or that that she has since deliberately refused to accept the return of her deposit in order to avoid possession proceedings.”

    Surely tenants can refuse the return of the deposit because as the payment of a deposit is a term of the contract they are under no obligation to consent to a variation of a term of the tenancy. Furthermore, is it not open to tenants in such situations to argue that it is to their advantage the landlord holds the deposit, so that at the end of the tenancy the tenant’s cash flow is not compromised should they owe rent, bills or other compensation to the landlord.

    I realise that were such a strategy to succeed, the tenant would effectively become a fully assured tenant, but what, in law, is wrong with that?

  8. As you say “interesting if not unsurprising” to see dishonesty and slight of protection becoming the thoughts for the 3 x penalty. The 2 x penalty would seem quit fair to both parties where the light is bright to grey, anything darker, indeed!

  9. A tenant may not refuse the return of the deposit. If he does refuse I would think that he may in fact forfeiting it, which, for the purpose of being able to serve a s.21 notice is the same as a refund.

    If the tenant could refuse the return of the deposit then the landlord would in effect never be able to evict…

    Here, from the quotes, the landlord only offered to return the deposit but never actually did so.
    The judge mentions that the landlord did not send a cheque to the tenant. If he had, IMHO that would have sufficed to say that the deposit had been repaid as the established rule is that a payment is made when a cheque is received.

    • I don’t think it is that straightforward.
      That there is a deposit, to be held by LL/in a scheme, is often a contractual term of the tenancy. Terms can be waived, but not unilaterally. So tenant could properly insist on performance of contract. This would not be ‘eternal’ as you suggest – a new tenancy agreement, or moving to statutory perioidic would enable LL to serve a s.21 assuming deposit was protected in ‘initial’ term – Deregulation Act.

      However, if the LL does make a payment (sends cheque, or bank transfer) then there is a clear basis to say ‘deposit has been returned to T’ and that factual position, regardless of breach of contract, would probably be sufficient for s.215.

      But a refusal to accept return of the deposit does not amount to forfeiting it. The LL has no contractual right to return the deposit. And even if it did, forfeiting would not be sufficient to meet the s.215 requirement – deposit must be ‘returned to T’

    • A new tenancy (fixed term or other) would always allow the landlord to protect the deposit.
      However, unless a statutory periodic AST is due to be created automatically this would still require the tenant’s agreement… If the tenant refuses and if he is untitled to refuse the get his deposit back (which I disagree) then he cannot be evicted as long as he pays his rent.

      And even if it did, forfeiting would not be sufficient to meet the s.215 requirement – deposit must be ‘returned to T’

      Note exactly: The deposit must be either returned in full or with agreed deductions.
      If the deductions agreed amount to the whole of the deposit then there is nothing to return.

    • If the tenant doesn’t agree to a new agreement at the end of the fixed term, then it becomes a statutory periodic. S.21 can be served. If the deposit was protected and PI served during the initial term (even if late) there is now no way for T to avid a valid section 21 after the end of the fixed term by refusing return of the deposit.

      No, refusing to accept the return of the deposit cannot amount to agreeing a deduction of the whole deposit. And as before, landlord has no right to effectively enforce a unilateral waiver of contractual term. T cannot ‘forfeit’ deposit by demanding LL adhere to contract.

      The forfeiture idea is a dead end.

    • Yes, in a special case a new tenancy will be created without the tenant’s agreement.

      No, refusing to accept the return of the deposit cannot amount to agreeing a deduction of the whole deposit

      If didn’t claim that it did, just that returning the deposit is not always absolutely required as you suggested.

    • Special case? You’ve lost me now.

      If the tenant agrees a 100% deduction, sure. Was taking agreed deductions as read. In that situation, it seems unlikely that there would be such an agreement.

    • Correcting myself – the only situation in which refusal would mean no s.21 after the end of the fixed term is an agreement for term then contractual periodic, so that it is the same tenancy continuing.

  10. Pingback: Tenancy Deposit protection and points from the Khuja v Chowdhury case

  11. Are penalty payments claimed under section 214 also subject to statutory interest from the date of the breach?

  12. Most reported cases on TDS I have come across invariably have tenants claiming under s.214 as a counterclaim. It leads me to wonder, does s.214 creates a cause of action in itself (ie. Will tenant be able to issue claim based ONLY on the fact of late-protection in a tenancy which has ended, as opposed to raising a counterclaim in a possession claim)?

    If it does, what would the value of the claim be for purposes of assessing court issue fees? Is it the deposit amount, three times the amount, or anything in between?

    • Certainly s.214 claims can and have been brought, quite often. Value of claim is 4 x deposit (return of deposit plus 3x penalty). Technically multi-track by a provision of the CPR, but value of claim will often be small claims.

      The reason reported cases are usually counterclaims is that legal aid is available for defending possession, hence lawyers and hence reports.

  13. I had a tenant who accepted their deposit back in full when they left the property on 30th April. She is now threatening to take me to court because her deposit was never protected due to it never being registered. She rented a room in my flats where I lived and did get a tenancy agreement. She paid deposit to previous tenant as I was abroad at the time. I forgot about using the deposit scheme. How do I stand?

    • Peter, we don’t give advice on individual’s issues through the site. We aren’t insured for it. Also, it is what we get paid for in the day job.

  14. Hi NL, are lodgers deposits protected like for assured tenancies? Is there any law or act that a lodger can make recourse to if deposit is withheld? Or have you reported cases like that on this blog? I’ve done some reading here and not seen any yet :)

    • No, lodgers don’t have assured shorthold tenancies so no requirement that the deposit is protected. Withheld deposit would be a straightforward money claim in the county court.

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