Khuja v Chowdhury  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  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.