Deposits – don’t fake compliance. And the multiple breach issue

Thank you to my colleague and fount of wisdom Deirdre Forster for this case note on a tenancy deposit claim.

Howard Davies v Scott, County Court at Clerkenwell & Shoreditch, 18 January 2018

In April 2013 Mr and Mrs Howard Davies signed an assured shorthold tenancy for a fixed term of two years. They paid a deposit of £4,100. On the expiry of the tenancy they held over on a statutory periodic tenancy for a further three months. After they had given notice, their landlord Mr Scott raised a complaint about moth damage to carpets in the loft area. At the end of the tenancy Mr Scott refused to return the deposit and alleged other items of damage. When asked about deposit protection Mr Scott provided an ID number which later turned out to be in respect of a different property. He then claimed that he had failed to protect the deposit because he had been unaware that the threshold for high rent tenancies had changed in 2010 and he had thought that his letting was exempt. He instructed a surveyor to negotiate with Mr and Mrs Howard Davies on his behalf. The surveyor quoted outdated law (Gladehurst Properties Ltd v Hashemi (2011) EWCA Civ 604) to suggest that Mr and Mrs Howard Davies had no claim. At this point they consulted solicitors. When further negotiations proved fruitless they issued a claim for the return of the deposit plus two sets of penalties. Mr Scott counterclaimed for some £25,000 worth of alleged damage.

District Judge Rand dismissed most of Mr Scott’s counterclaim, finding that he “had not been forthright”. She awarded three times the penalty for the failure to protect the deposit in April 2013, stating that a five minute computer search would have told Mr Scott that the high rent threshold changed in 2010 and that it is a landlord’s responsibility to know the law.  She stated that misleading tenants is conduct justifying a penalty at the high end of the scale.

The Judge accepted the proposition that the periodic tenancy arising at the end of a fixed term was a new tenancy (section 5 Housing Act 1988 and Superstrike Ltd. v. Rodrigues (2013) EWCA Civ 669) but disagreed with submissions that a second penalty was payable when the statutory tenancy arose in April 2015. She referred to section 214 of the Housing Act 2004 which refers to “a penalty, a tenancy and a deposit” in the singular, and noted that the opportunity to clarify the point in the Deregulation Act amendments to Housing Act 2004, after Superstrike, had not been taken.

The District Judge ordered that the deposit be returned, less the sum of £1,610, giving a total judgment in the sum of £15,978 plus costs. In addition she ordered a payment of £15,000 on account of costs.

Comment

With respect to the District Judge, I do think this has to be wrong. Section 214 is in the singular (a penalty, a tenancy, a deposit) because it is in regard to an instance of non-compliance. A claim that includes as separate heads of claim a number of failures to protect a deposit (which was received afresh for each new/replacement tenancy as per Superstrike) in relation to a series of tenancies (fixed term to new fixed term, or fixed term to statutory periodic), is not pleading a single failure to comply with s.213. The claim is actually for a breach in relation to a tenancy and a deposit, but for a series of different tenancies and deposits. So s.214 operates, singularly, for each breach.

As a thought experiment, could a separate claim be brought for each breach? The answer has to be yes. So it must also be possible to bring a single claim with separate heads for each breach in relation to each subsequent tenancy, and have the penalty awarded for each breach.

And, because this is something I had heard was raised in another deposit claim before a different District Judge in a different city, the Deregulation Act amendments to the Housing Act 2004 on deposits make no difference whatsoever to the position on penalty claims, with one exception – below. While a deposit protected late in the course of one tenancy might count as protected in the next replacement tenancy for the purposes of serving a s.21 notice, this in no way rectifies the initial breach for the purposes of a s.214 claim.

The one exception is the very limited class of the classic ‘Superstrike‘ case – where a fixed term tenancy began before 6 April 2007 but became a statutory periodic tenancy after 6 April 2007 – which basically gave the landlord 90 days to protect the deposit from the commencement of the Deregulation Act to achieve full retrospective compliance. If they didn’t, that is that.

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.

16 Comments

  1. This is another point we could do with having appealed to HHJ Luba QC so that those of us in London at least can know what a consistent view would be. I agree with you Giles and on the same reasoning. I have had this declined by a very experienced DJ on precisely the reasoning of DJ Rand (herself very experienced of course) with which I respectfully disagree; I have also had the multiple breach – multiple penalty line accepted by other DJs – from memory more have been with me than against.

  2. For examples of first instance decisions in which multiple awards have been made for multiple breaches, see: Kazadi v Brooks (2015) September Legal Action 51; Akrigg v Pidgeon (2016) May Legal Action 40; Chaudry v Cooley (2016) November Legal Action 40; Manu Ventures Ltd v Sida (2017) April Legal Action 39

  3. It would be nice to get some clarity on the multiple breach issue as it . The common line I have experienced in County Court’s is in line with DJ Rand’s reasoning – I would add that DJ’s often cite Luba et al’s Defending Possession Proceedings 8th edition at p.345 and its attendant note 108 to counter the multiple breach argument.

  4. sorry failed to finish my sentence – ‘as it is a major area of uncertainty in Landlord and Tenant litigation’.

    • Yes, of course – the text suggests a single breach argument but the note is, in my experience, used to counter the ‘the conclusion from Superstrike must be a multiple breach conclusion’ line of argument or the citation of the Legal Action cases cited by DC above. I personally lean to the multiple breach argument, but have used both arguments (depending on the client) – given the split at the judicial level it is very difficult to advise both tenants and landlords – many of whom would rather settle matters and be done with it, than incur the expense of fighting it in Court.

  5. Excellent that a Landlord that attempted to deceive the Tenant and the Court gets a smack, it shows the lengths some will go to.

    Was very poor advice to quite Gladehurst Properties Ltd v Hashemi, really can only be seen as part of deception to fool the tenant.

    I do wonder whether on the back of that partial success whether the claimant is minded to go for an appeal on the matter of the SPT?

    Isn’t there is enough case law on Superstrike for tenancies pre Dereg to ensure success?

    I remember so many cases from that period, which as you say led to Dereg act.

    Will the 3 year retrospective aspect of Dereg prevent claims on pre Oct 2015 tenancies after October 2018?

  6. It seems to me that the fact that s214 refers to “tenancy”, in the singular, undermines rather than supports the conclusion that only one penalty is payable: given that it was accepted that there were two separate tenancies, the conditions in s214 surely fall to be considered – and are met – in relation relation to each “tenancy” individually. Similarly in relation to “deposit”, given the definition in s212, as discussed in Superstrike.

    Also, if the reasoning is correct, it is not immediately obvious to me why it would be confined to Superstrike cases and would not apply equally to cases where, for example: (a) a landlord grants one 12 month AST followed by another 12 month AST on the expiry of the first; and even perhaps (b) where the first and second AST are separated by a period where the tenant lives elsewhere. It is hard to imagine that the latter could be correct.

  7. I didn’t think a subsequent ( albeit continuing ) tenancy which had a correctly protected deposit, allowed a Sec 21 to be served ?
    Could you point me to the particular part of the Housing Act that explains this please.

  8. DC,

    my understanding and experience is that for POST Dereg Act it comes down to those famous words “SUBSTANTIALLY THE SAME”, prior to that we have law at the time, but we also have the Dereg changes post Oct 2018

    Chris Daniel,

    Look at Dereg Act 2015, parts 33 to 40, which updates said act

    http://www.legislation.gov.uk/ukpga/2015/20/contents/enacted

    A Sec21 can be served if the requirements were met, failures to meet those requirements may void an S21 but can be rectified by subsequent adherence and new S21 except for the Gas Safety Certificate, that issue is covered here

    https://nearlylegal.co.uk/2018/02/i-can-serve-gas-safety-certificates/

    Part 32 covers what is DEEMED as protected

    http://www.legislation.gov.uk/ukpga/2015/20/section/32/enacted

    Specifically:

    215B Shorthold tenancies: deposit received on or after 6 April 2007

    (1)This section applies where—

    (a)on or after 6 April 2007, a tenancy deposit has been received by a landlord in connection with a shorthold tenancy (“the original tenancy”),

    (b)the initial requirements of an authorised scheme have been complied with by the landlord in relation to the deposit (ignoring any requirement to take particular steps within any specified period),

    (c)the requirements of section 213(5) and (6)(a) have been complied with by the landlord in relation to the deposit when it is held in connection with the original tenancy (ignoring any deemed compliance under section 215A(4)),

    (d)a new shorthold tenancy comes into being on the coming to an end of the original tenancy or a tenancy that replaces the original tenancy (directly or indirectly),

    (e)the new tenancy replaces the original tenancy (directly or indirectly), and

    (f)when the new tenancy comes into being, the deposit continues to be held in connection with the new tenancy, in accordance with the same authorised scheme as when the requirements of section 213(5) and (6)(a) were last complied with by the landlord in relation to the deposit.

  9. Giles is right, I think. Whether the premises let are “substantially the same” is part of determinibg whether you have a “replacement tenancy”, such that compliance during a previous (“original”) tenancy results in deemed compliance under s215B. That is the way Parliament chose to deal with the effect of Superstrike (having to reserve the PI at the start of each new tenancy). Here we are talking about cases where there has been no compliance during any tenancy. In these circumstances, there is nothing applying the concept of replacement tenancies to limit the number of penalties payable under s214 – which Parliament could have chosen to do while they were at it, but didnt. (Nor was it the basis of DJ Rand’s decision by the looks of things).

  10. Of course Giles is right, I do not mean it as a legal term albeit that it is used in some areas, it is just the way I have reminded myself for years of what usually counts.

    For example if there is a new tenancy for the same tenant but less of the property is let or if there is a another tenancy for the same property with the same tenant plus one other, they would be treated differently, probably requiring separate claim.

    Many Landlords do not understand the differences between an AST and SPT which is also an AST, a Replacement and a Renewal, some are preferring the CPT to avoid the SPT obligations such as 1 month tenant notice when they have to give two.

    The case this blog highlights is a terrible one, it suggests deceit from the beginning to end and a blatant disregard for deposit protection legislation.

    I have had cases where Landlords have been lazy in their renewals, one had 3 separate tenants each with their own contract, first for 6 months, then annual. They did not bother to renew on time, so SPT’s were created, they then did issue new tenancies but from current date, then let those expire. This happened for 3 years so they technically ended up with 3 tenants, each with 4 AST’s and 3 SPT’s. They were lucky it was not an HMO due to layout of buildings.

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