Tenancy Deposit Scheme Breaches

Tenancy Deposit Scheme Breaches – Can There Be Multiple Breaches?

Payment of a deposit by an assured shorthold tenant as security for performance of the obligations of the tenancy is the norm. The Housing Act 2004 (“the Act”) brought in the tenancy deposit scheme which required landlord to essentially protect deposits paid by tenants in relation to assured shorthold tenancies. It is now well-known amongst landlords that they are required to deal with those deposits in accordance with the requirements of one of two types of government-approved deposit protection schemes

Mr Justice Tugendhat encapsulated the tenancy deposit in the case of Draycott:

“A tenancy deposit scheme safeguards tenancy deposits paid in connection with shorthold tenancies. Landlords commonly require tenants to pay a deposit, as security for any damage that the tenant may do to the property. One purpose of the Act was to provide security to tenants, since in some cases landlords have failed to return the tenant’s deposits at the end of tenancies in circumstances when they have no right to retain it. The Act requires, by s.213, that any tenancy deposit paid to a person in connection with a shorthold tenancy must, as for the time when it is received, be dealt with in accordance with an authorised scheme. At ss.214 and 215 the Act provides for proceedings which a tenant may take if the landlord fails to comply with the requirements of the Act, and for sanctions for non-compliance.

 

The first thing to note is that the word “landlord” in the Chapter 4 of the Act includes the actual landlord, and any agent acting on the landlords’ behalf.

The Act requires that the landlord place the tenancy deposit into a tenancy deposit scheme within 30 days of the tenancy deposit having been received, there are two ways to do this:

  1. Insured based scheme, and
  2. Custodial scheme.

The Act also requires that the landlord must provide the tenant with the tenancy deposit prescribed information also within 30 days of receiving the tenancy deposit. In some cases, it will be agent acting for the landlord that is required to comply with the tenancy deposit scheme requirements (see Draycott & Anor v Hannells Letting Ltd (t/a Hannells Letting Agents) [2010] EWHC 217 (QB))

Where a landlord fails to comply the tenancy deposit scheme requirements, s.214(4) of the Act provides that a tenant may seek 1-3 times the value of the tenancy deposit. This provision of the Act is penal. There are other sanctions for non-compliance set out in s.215 of the Act.

The case of Superstrike Ltd v Marino. Rodrigues [2013] EWCA Civ 669 established, as per s.5 of the Housing Act 1988, that a periodic tenancy arising at the end of the fixed term of the tenancy was a new tenancy. Following this decision, it was often seen by lawyers and Judges at County Court level that a landlord was required to comply with the tenancy deposit scheme requirements each time a new tenancy was created; whether that was a statutory periodic tenancy or a renewal. This was because it was often seen that each time a new tenancy arose, the tenancy deposit was treated as having been paid again as the landlord would apply the existing deposit to the new tenancy, even though there was no physical exchange of money.

The consequence of this has been, for some unfortunate landlords, that where the landlord has failed to comply with the tenancy deposit scheme and a new tenancy has arose, the tenant has brought multiple claims under s.214(4) of the Act, claiming 1-3 times the value of the tenancy deposit per tenancy.

The Deregulation Act 2015 then brought amendments to the Act, specifically s.215B of the Act which sought to clarify that Parliaments intention was not for landlord to have to comply with the tenancy deposit scheme requirements each time a new tenancy was made. This was Parliaments’ response to Superstrike Ltd v Marino. Rodrigues.

In the House of Lords on the Deregulation Bill (now the Deregulation Act 2015) Volume 756: debate on the Thursday 30 October 2014 Lord Wallace of Saltaire (at column 518):

“My Lords, this clause and the government amendments are here because of the uncertainty and concern caused to landlords and tenants across the private rented sector by the Court of Appeal decision in the case of Superstrike Ltd v Marino Rodrigues. The noble Baroness’s amendment also touches on some of the implications of that case. The decision effectively interpreted the legislation differently from its original intention and contrary to the advice given by successive Governments. It left a large number of landlords at risk of court action and open to a financial penalty, because the tenancy deposit protection requirements must be complied with within a set period. That leaves landlords in an impossible position with no means of complying. The situation is made more complicated by the increase in the number of landlords resident outside the United Kingdom, which means that they are dependent on letting agents to deal with their tenants. Similarly, it has left tenants unclear about the status of their deposits.

The aim of Clause 31 is not to completely reverse the decision made by the Court of Appeal, as it is important that the protection offered to these tenants as a result of the ruling is retained. It gives landlords a grace period to protect those deposits and give the necessary information to the tenant. That applies to landlords who still hold deposits which were taken before the introduction of the tenancy deposit protection legislation for tenancies which rolled over into statutory periodic tenancies after the introduction of the legislation.

The clause will make it clear that where a deposit has been protected, the prescribed information is given to the tenant and the tenancy is subsequently renewed, there is no need for the landlord to keep providing the same information every time the tenancy is renewed. It will also be clear that this has always been the position and will continue to be from now on.” – Emphasis added.

S.215B of the Act provides that he landlord is deemed to have complied with the tenancy deposit scheme requirements in relation to the new tenancy where:

  1. 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),
  2. 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)),
  3. 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),
  4. the new tenancy replaces the original tenancy (directly or indirectly), and
  5. 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.

 

However, despite the clarity the Deregulation Act 2015 sought to bring to the tenancy deposit scheme legislation, contention remains.

There are various County Court decisions, both before and after the enactment of the Deregulation Act 2015 in which a  Court has made an order under s.214(4) of the Act for multiple breaches. Howard v Dalton, County Court at Dartford, 7 May 2019 was one of them.

However, this does not appear to be the correct position. Compliance with the tenancy deposit scheme requirements is a once and for all obligation, once the scheme requirements have been complied with, there is no need to comply with those requirements again in relation to the tenancy, periodic or renewed tenancy. For this reason, if a landlord fails to comply with the tenancy deposit scheme requirements, there cannot be multiple breaches.

This was issue was raised by Mr Charles of Landlord Advice UK at a hearing in the Willesden County Court before DDJ Sachdev on 01 October 2021. Mr Charles was instructed to set aside an order made against a landlord in default for failing to file and serve a response to the proceedings. In applying the test in Denton and pleading that it was not Parliament’s intention for multiple claims to be brought under s.214(4) of the Act, and that this issue needed to be considered by the Court, the order against the landlord was set aside.

In delivering judgement, the learned Judge found that there was a defence which had a real prospect of success and that it was in the interest of justice for the defence to be heard. This is of course not a decision on the issue itself, but may lead to a conclusive decision of the Court as to the interpretation of s.214(4) and s.215B of the Act, which thus far, there do not appear to be any reported cases on.