Chapter 4 of the Housing Act 2004 which relates to the protected of tenancy deposits has been debated in courts and among lawyers, landlords and agents since its enactment on April 2007. The provisions of s.213 of the Housing Act 2004 which requires landlords to protect a tenancy deposit paid in connection with an assured shorthold tenancy within 30 days of the landlord receiving the tenancy deposit and to serve the prescribed information in relation to the deposit protection upon the tenant within the same period. Though many of you will already know, s.215 of the Housing Act 2004 governs the effect of non-compliance with the tenancy deposit scheme requirements referred to above and the effect that non-compliance has in relation to the serving of s.21 notice (under the Housing Act 1988). The scope of this article focuses on whether the legislation does and intends to require a landlord to return a tenancy deposit to serve a s.21 notice where the tenancy deposit scheme requirements have not been complied with.
Where a tenancy deposit was protected out of time or perhaps not at all, so long as the tenancy deposit was protected and the prescribed information served upon the tenant, a s.21 notice could subsequently be served…but then s.31 of the Deregulation Act 2015 amended s.215 of the Housing Act 2004 and this caused a complete mess contravening the intentions of s.215 of the Housing Act 2004.
Before the amendments derived from the Deregulation Act 2015 aforementioned, s.215 (1) and (2) of the Housing Act 2004 (as amended by s.184 of the Localism Act 2011) read:
215 Sanctions for non-compliance
(1) Subject to subsection (2A) if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when –
(a) the deposit is not being held in accordance with an authorized scheme, or
(b) section 213(3) has not been complied with in relation to the deposit.
(2) If section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.
The above extract is unequivocally clear that a s.21 notice may be served irrespective or non-compliance with s.213 of the Housing Act 2004 so long as the tenancy deposit was protected and prescribed information served upon the tenant and if applicable the relevant person, before the s.21 notice was served.
In our opinion, this was a well balanced piece of legislation which prevented landlords seeking for possession of their property (under s.21) unless the tenancy deposit was protected and prescribed information served first thus restricting the serving of a s.21 temporarily until the tenancy deposit was secured with a government authorized scheme. This prevented a tenant being evicted while their tenancy deposit was not protected which would otherwise contravene the entire purpose of the tenancy deposit protection scheme, which in short, is in place to prevent tenants deposit being erroneously retained partially or in full by the landlord or agent.
Following amendment by s.31 of the Deregulation Act 2015, s.215 (1) and (2) of the Housing Act 2004 now reads:
215 Sanctions for non-compliance
(1) Subject to subsection (2A), if (whether before, on or after 6 April 2007) a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when the deposit is not being held in accordance with an authorized scheme.
(1A) Subject to subsection (2A), if a tenancy deposit has been paid in connection with a shorthold tenancy on or after 6 April 2007, no section 21 notice may be given in relation to the tenancy at a time when section 213(3) has not been complied with in relation to the deposit.
(2) Subject to subsection (2A), If section 213(6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with.
(2A) Subsections (1), (1A) and (2) do not apply in a case where—
(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or
(b) an application to the county court has been made under section 214(1) and has been determined by the court, withdrawn or settled by agreement between the parties.
In a literal sense, the above does suggest the s.21 notice cannot be served at all if the tenancy deposit scheme requirements are not complied with within the 30 days time limit until you interpret the legislation by the intention of it. Because the literal meaning of s.215 of the Housing Act 2004 (as amended) now provides that a s.21 notice cannot be served where the tenancy deposit is protected late, many judges take the view that a landlord must return the tenancy deposit to the tenant to enable the serving of a valid s.21 notice as section 215 (2A) states that if the landlord returns the tenancy deposit the sanctions under s.215 (1), (1A) and (2) of the Housing Act 2004 no longer apply. This of course increases costs landlords incur as the tenancy deposit is then returned, anew s.21 notice served on the tenants and issue anew claim for possession of property. The Deregulation Act 2015 was supposed to save millions of pounds for individuals and companies as it formed part of the Governments ‘red tape challenge’ albeit it has done quite the opposite.
This leads to consider a ‘what if’ scenario…what if a tenant does not accept the return of the tenancy deposit?…Can a landlord then never serve a s.21 notice?…This would inexorably lead to the assured shorthold tenancy being tantamount to an assured tenancy if it cannot be terminated by virtue of s.21 of the Housing Act 1988 the court therefore had to consider what amounted to the return of a tenancy deposit which was considered in the case of Yeomans v Newell, Canterbury County Court 25 May 2016. In short, this case concluded that sending a cheque to the tenant amounted to the return of the tenancy deposit irrespective of when or if the cheque was cashed, though of course this case did not create a binding precedent. The court in a sense had no choice but to come to the conclusion that a tenant receiving a cheque in these circumstances amounted to the return of a tenancy deposit, because if the court did not, and the tenant never cashed the cheque or accepted the tenancy deposit to be returned by other methods, the landlord would never be able to terminate the tenancy under s.21 which is the very ground for possession that gives landlords security to let property knowing they can seek for possession of the premises without the need for a reason or fault of the tenant. We disagree that sending a cheque which is not cashed amounts the return of the tenancy deposit because if the tenant did not cash the cheque, the landlord then evicts the tenant under s.21 and subsequently cancels the cheque provided to the tenant the tenant has not had the protected require by Chapter 4 of the Housing Act 2004. Notwithstanding our view, this is how courts currently apply the legislation and we therefore have to advise landlords of this.
Intention of s.215 of the Housing Act 2004 (as amended)
However, the legislation does not intend to require landlords to return the tenancy deposit despite its literal meaning appearing to be the case. It is merely an option to the return the tenancy deposit in such circumstances. The legislation is currently so poorly written to the extent that is far easier to conclude that a landlord should return a tenancy deposit (which then means s.215 (1), (1A) and (2) of the Housing Act 2004 no longer apply) than it is to deal with the argument that a s.21 notice can be served in a case where the tenancy deposit was protected and prescribed information served late but before the serving of a s.21 notice.
In s.215 (1) of the Housing Act 2004, it states that no s.21 notice can be served at a time the tenancy deposit is not being held in accordance with an ‘authorized‘ scheme, so what is the meaning of authorized for the purpose of Chapter 4 of the Housing Act 2004?
In s.212 (8) of the Housing Act 2004 the meaning of ‘authorized‘ is defined as:
(8) In this Chapter—
“in accordance with arrangements under subsection (1);”, in relation to a tenancy deposit scheme, means that the scheme is in force
From the above definition we are brought to s.212 (1) which reads:
(1) The appropriate national authority must make arrangements for securing that one or more tenancy deposit schemes are available for the purpose of safeguarding tenancy deposits paid in connection with shorthold tenancies.
We can now established from the above that following amendments of the Deregulation Act 2015 s.215 (1) of the Housing Act 2004 would still provides that a s.21 notice can indeed be served if it at the time it is served the tenancy deposit is being held in accordance with an ‘authorized‘ scheme and no reference to a time limit is made in the legal definition of an authorized scheme.
The provisions of s.215 (2) of the Housing Act 2004 provides that where a s.213(6) is not complied with, no s.21 notice may be served until such time as s.213(6)(a) is complied with, s.213 (6) reads:
(a) in the prescribed form or in a form substantially to the same effect, and
(b) within the period of 30 days beginning with the date on which the deposit is received by the landlord.
As per s.215(2), if s.213(6) is not complied with, no s.21 notice may be given until such time as .216(6)(a) is complied with. Given that the requirement of s.213(6) is to serve the prescribed information on relevant persons within 30 days of the tenancy deposit being received by the landlord, if this is not complied with, one cannot comply with it once the 30 day requirements passes, the only way this would be possible is to return the tenancy deposit to the tenant and then seek for the tenancy deposit to be repaid for the landlord to then comply with this 30 day requirement. There was no reference to anything of the sort during discussion in the Housing of Commons regarding the Deregulation Act 2015, or as it were then the Deregulation Bill.
Brandon Lewis MP published the ministerial statement of Lord Ahmad of Wimbledon which clarifies the amendments made to the tenancy deposit legislation are intended to clarify the position of landlord who received a tenancy deposit before the tenancy deposit protection legislation came into force. An extract from this statement is below:
We are clarifying tenant deposit protection legislation in response to recent court cases. As a result where landlords took a deposit prior to the introduction of the tenancy deposit protection legislation on 6 April 2007 in respect of a tenancy which (a) rolled over into a statutory periodic tenancy on or after that date and (b) is still in existence when the Deregulation Bill shortly receives Royal Assent will have a period of 90 days from the date of Royal Assent to protect their tenant’s deposit or potentially face a fine.
Lord Wallace of Saltaire proposed the amendments to s.215 of the Housing Act 2004 under amendment 45A of the Deregulation Bill – Third Marshalled List of Amendments to be Moved on Report (‘amendment 45A’) which passed the House of Lords and was included in the final draft of the Deregulation Bill which received royal assent.
It now becomes even more interesting…the Lords did not identify the issues that the draft amendment 45A was actually going to cause, it appears from the debate in the Lords Chambers on 11 February 2015 that the scope of the Lords focus was making it clear that the proposed amendments to s.215 of the Housing Act 2004 was to be clear that such provisions applied whether or not the tenancy deposit was paid before, on or after 6 April 2007. The lords had not identified that these proposed amendments were also reading that no section 21 notice could be served if the tenancy deposit was protected within 30 days of the tenancy deposit being paid.
In the debate in the Lords Chambers on 11 February 2015, Lord Ahmad of Wimbledon said:
Amendment 45A has been tabled in response to the Court of Appeal’s judgment in the case of Charalambous v Ng 2014, which concerned a landlord who received a tenancy deposit prior to the coming into force of the tenancy deposit legislation in 2007. The tenancy in question became periodic prior to the date that the tenancy deposit legislation came into force and has continued as such ever since. The court ruled that the tenancy deposit legislation should apply to all landlords in this position and that they would therefore need to protect deposits if they wished to rely on the no-fault ground for eviction known as Section 21. It was never the intention, either in 2007 or following amendments made to the tenancy deposit legislation in 2012, that it should apply in this way. The amendments that we propose will make absolutely clear that, although landlords affected by the judgment will need to protect deposits if they wish to rely on Section 21, they will not be at risk of financial penalties should they fail to protect.
Note that in the above extract as highlighted in bold Lord Ahmad (of Wimbledon) states that to rely on the s.21 ground for possession landlords need to protect their tenancy deposits not return the tenancy deposit.
All of the above consolidates the issues on interpretation to s.215 (1A) of the Housing Act 2004 which provides if a tenancy deposit is not protected within 30 days of the tenancy deposit being paid, no s.21 notice can be served which contradicts what s.215 (1) of the same Act provides and there is no provision imposing a duty for a landlord tor return the tenancy deposit, but it is indeed an option.
Landlord Advice UK have been battling to deal with this contention to have it clarified in law that the return of the tenancy deposit is not a requirement for the purpose of serving a s.21 notice but a mere option and we are now very close to doing so.
At an appeal hearing on 05 October 2017 in the Central London County Court in relation to an accelerated possession claim before HHJ Lamb, Landlord Advice UK was assisting a landlord who needed help appeal the courts’ decision made in the form of a letter to the claimant in which the district judge commented that the only way to serve a section 21 notice where the tenancy deposit scheme requirements had not been met was to return the tenancy deposit which we vehemently oppose.
In this case, the tenancy deposit was protected late and prescribed information also served late upon the tenants, but crucially before the serving of a section 21 notice.
With further evidence to be filed, a further hearing is take place at the next available date after 42 days following which the case is likely to be heard in the court of appeal where the decision shall clarify the contention with s.215 of the Housing Act 2004.
If necessary we are likely to make an application for judicial review as this matter is not only in the interest of our client, but the private rented sector.
Author: Mr Sasha Charles