Court ruling will protect busy landlords from severe penalties

Since the Tenancy Deposit Scheme was introduced in 2007, landlords have faced the risk of being taken to court and ordered to pay three times the amount of their tenants deposit if they failed to protect the deposit in time.

But a recent Court of Appeal ruling, which took place this November, will help protect landlords from facing such a severe penalty for a minor, and often unintended, failure to meet government legislation, explained Keith Songhurst, solicitor at Essex law firm Birkett Long LLP.

The government introduced the Tenancy Deposit Scheme in April 2007 to protect tenancy deposits and to provide a fairer system for settling disputes about the return of a deposit at the end of a tenancy.

Under the scheme, landlords were required to protect their tenants deposit by placing it in one of the recognised schemes within 14 days of receiving the money. If the landlord failed to take the required steps within the fortnight, the tenant had the right to apply to the court for compensation of three times the amount of the deposit they had paid.

“Over recent years we’ve seen several cases in which a landlord has been taken to court for this default,” said Keith. “In many cases, the delay has been completely unintentional and was simply because the landlord ran out of time to carry out the necessary procedures, and not because they intended to purposely break the rules. Fourteen days really isn’t a long time to deposit the money, particularly when you’re a busy landlord balancing a portfolio of properties.”

He added: “The wording of the legislation was quite unclear. It appeared to be strict that if the landlord did not comply with the obligations, and within fourteen days, the court would order them to pay compensation. But by the time these cases came to court, weeks had elapsed and most landlords had got their house in order, finding the time to pay the tenants deposit into a protection scheme as needed. The court then had to decide whether the landlord should still be ordered to pay the compensation, for missing the two week deadline. It really became a very grey area.”

In a recent case* (November 2010) the Court of Appeal decided that, in fact, the landlord had until the date of the hearing of the tenant’s claim to comply with the requirements. And provided they did so, they would not be obliged to pay any compensation to the tenant. Welcome news for landlords.

Keith said: “This decision will come as a relief to landlords who faced severe penalties for even a minor failure to comply with their obligations in time.”

He added: “On the other hand, tenants would argue that the court’s decision has stripped the legislation of its intended effect, as landlords can now avoid sanction even if they do not comply with their obligations until after the tenant has issued a claim against them, providing they do so before the hearing of that claim.”

“Regardless of which side of the fence you sit, the decision does at least offer clarification on an issue that has caused confusion due to unclear wording of the legislation, and that is something of which both parties should be glad.” concluded Keith.

Keith Songhurst is a partner in the Commercial Litigation team at Birkett Long LLP, specialising in property litigation. He is a member of the Property Litigation Association.
www.birkettlong.co.uk

*Tiensia-v-Vision Enterprises Limited and Honeysuckle Properties v Fletcher and others [2010] EWCA Civ 1224