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News Story

Agents in landmark case on tenants' deposits

Wednesday 4th February 2009

A case at Leeds County Court has highlighted that letting agents may face proceedings over tenancy deposits.

In this notable case, the agents escaped penalty even though the tenant’s deposit had not been protected and the tenants not given the ‘prescribed’ information. Their lawyer successfully argued that the legislation had been badly drafted.

Diamond Properties, based in Headingley, Leeds, are thought to be the first agents to find themselves in court over tenancy deposit protection. Until now, it has been landlords who have had to face the music. The company are busy agents managing some 500 properties a year, many of which are let to students, said their lawyer.

Hayden Glynn, of Lupton Fawcett, who represented Diamond, said that while landlords were generally seen to have ultimate legal responsibility for tenants’ deposits, the Housing Act, which introduced compulsory tenancy deposit protection, lays down that “any relevant party” could face penalties.

Compulsory tenancy deposit protection makes it illegal for any letting agent or landlord to take a tenant’s deposit unless it is protected in one of three Government-approved schemes. Whoever takes the deposit must also tell give the tenant certain information within14 days, including details of the scheme, address of the rental property, and address and name of the landlord.

Failure to do either of these means that the landlord – or, as this case suggests, agent – is liable to be penalised. The penalties are heavy: the court has power to order that the deposit plus three times its amount has to be handed to the tenants. Also, where a tenancy is ongoing, the landlord or agent cannot use the fast-track Section 21 procedure to regain possession.

In this particular case, a group of students had paid a deposit in May 2007, shortly before their tenancy started.

The following March, they wrote saying they had reason to believe their deposit was not protected. The deposit was duly protected that same month, but the tenants were not given the prescribed information until after the tenancy had finished and court proceedings had started. The prescribed information was supplied in December 2008.

However, Hayden Glynn was able to argue that although the intention of the Housing Act was to make it a statutory obligation both to protect the tenant’s deposit and to confirm the arrangement within 14 days, the law had been so drafted that the penalty could be escaped just as long as the deposit had been protected and the tenants informed before the case got to court.

Glinn said after the case: "I spent hours reviewing the Housing Act, Parliamentary Notes including the explanatory notes to the Housing Act and the Explanatory Memorandum to the Housing Act and found that the Act is badly drafted and not in line with its intentions. I believe that so long as you have protected a deposit by the time you get to court, you can escape penalty, but of course if everybody realised that then the tenancy deposit schemes would soon go out of business."
Glinn also warned that student tenants in particular were likely to try to pursue the penalty: “Across the country, students have been having a field day, knowing that a lot of landlords have not been complying with statutory tenancy deposit protection. Students are particularly well informed about the law: go on to any campus and there will be posters asking if their landlord has protected their deposit.

“The Tenancy Deposit Scheme was introduced on April 6, 2007 and since then tenants have learned to use it to their advantage. In a significant number of cases landlords have been harshly penalised not because they had failed to comply with the Act, but because they had failed to do so within the short time limit laid down by the Act. There have even been cases where a landlord has put the protection in place but just failed to notify the tenant properly.

“This is not how the Government intended the scheme to work. Tenants have exploited a badly worded piece of legislation and landlords have been paying a heavy price.”

The part of the Housing Act 2004 at the heart of this case was section 214(1)(a).

But Glinn emphasised that it was far better for both agents and landlords not to overlook their obligations over tenancy deposits, and to stick to the 14-day time limits. He also pointed out that this particular case was heard in a county court, whose rulings do not bind other courts.

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Posted By Jim on Wednesday 4th February 2009 14:10:34

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"the agents escaped penalty even though the tenant’s deposit had not been protected" So they broke the law then? Mike, I don't get your point. Either they broke the law or they didn't. You don't seem to be very clear on this matter.

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Posted By Mr Brightmove on Wednesday 4th February 2009 13:06:49

See Profile or Message Mike Osborn

Jim - The agent in question is one of the largest in the country. The tenant's case is against the agent for withholding the deposit after the tenancy had ended, mentioning also that they were not correctly advised about the stakeholder scheme contrary to legislation. Although there is an Ombudsman service, the tenant has taken the court route. As the article correctly informs - the tenant can take action against any of the parties and this can be either the agent or the landlord. Tenants are looking for loopholes in the Housing Act and appear to be finding them. The law most certainly is an ass and this is what provides fodder for lawyers involved in such cases!

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Posted By Jim on Wednesday 4th February 2009 12:48:00

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If the landlord has complied with the LAW, there wouldn't be a case. Would there? It's a really simple law to comply with. You take a deposit, and you join a scheme. How hard is that? You could always break the law to save yourself some money, then who's the ass?

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Posted By Mr Brightmove on Wednesday 4th February 2009 11:27:06

See Profile or Message Mike Osborn

I am currently personally engaged in such a case. The ex tenant herself claims the title of "Legal community advisor" and is obviously jumping on the bandwagon the same as everyone else. This is a good way to try and raise cash when there is not much of it about - especially when you can try and claim back 3 times your deposit for the inconvenience! It just goes to show that the law itself is an ass!

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Editorial Contact Details - Rosalind Renshaw | rosalind.renshaw@estateagenttoday.co.uk | 01252 843 566.