Localism and Tenancy Deposits

by Ben Reeve-Lewis

13:27 PM, 3rd January 2012
About 7 years ago

Localism and Tenancy Deposits

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Localism and Tenancy Deposits

As regular readers of P118 will know, the rocky road of tenancy deposits was pretty much a farce from its introduction in 2007 and has been right up to the present day.

I’ve been involved in housing law for most of my working life and I have to say I have never seen anything quite like it. The law unraveled faster than Jeffrey Archer in a witness stand.

The aim of it was good. Prior to it’s inception, records were showing that only 14% of tenants were getting their deposits back when they left and I know from my own anecdotal experience that a huge amount of landlords were withholding them on spurious and unsupportable grounds. Landlords too are saved the hassle of ill founded back claims, with the schemes adjudication teams making the decisions.

Australia had long had a deposit protection scheme that operated successfully and the UK government drew on that model, but it was in the wording of our version that things went awry.

Falling apart


For the first couple of years that the new law was in many landlords just didn’t know about it and if they did, the small details were too legalistic to be of much use. Courts too, who were dealing with claims made by tenants, couldn’t agree on how to interpret the various clauses. There was no consistency in terms of decisions being made and for a long while none of the cases went up to the higher courts so there were no case law precedents that could be used in legal cases. In short, it was chaos out there.

The first challenge that did end up in a court of authority was the infamous Tiensia case, which didn’t bode well for tenants.

The Housing Act 2004 that set out the deposit protection rules stated that if a landlord did not protect the deposit within 14 days of receiving it or if they failed to serve prescribed information in the correct form, also within 14 days, then the tenant could take the landlord to court and the courts would order the landlord to return the deposit and pay a penalty to the tenant of 3 times the amount of the deposit.

The Tiensia case pretty much shot that one down, making the argument that as long as a landlord protected the deposit before the tenant got the case into court they could avoid paying the penalty.

Landlords 1 : Tenants 0.

Running up the wing and crossing the ball from Tiensia came Gladehurst Properties v. Hashemi in midfield putting the nail in the coffin of tenants claiming the 3 x penalty after the tenancy had ended. The courts said it can’t be done.

Landlords 2 : Tenants 0.

The future

For once the government admitted the law was an ass in this case and made amendments in the Localism Act to bring things back closer to the intended flavour of the original law.

The new Act is currently going to be effective law in April 2012, probably the 1st of the month, although things could move a bit.

Gone is the protection within 14 days rule and in its place a requirement to protect within 30 days, with a similar requirement to provide the prescribed information to the tenant. A far more reasonable regulation I’m sure you will agree.

The 3 x penalty has also been amended. If a landlord fails to protect or provide prescribed information within the newly extended 30 days then the tenant can still sue the landlord but the courts will only order a penalty of ‘Up to’ 3 times the amount of the deposit, not a blanket 3 x penalty.

Working in this way allows the courts to use their discretion and differentiate between genuine errors and wilfulness on the part of the landlord.

This corrected the problem seen in the differing decisions of the lower courts before Tiensia, some county court judges were reluctant to whack a full 3 x penalty on an ignorant as opposed to wilful landlord. Again no bad thing and I doubt that any hardcore tenants champions would have a problem with that.

The Gladehurst decision has also been reversed, claims against landlords for non protection will be able to be made after the tenancy has ended.

A smaller change, but one worth noting is that if a court agrees with the tenant’s application the landlord will be ordered to protect the deposit within 14 days of the decision.

Landlords failing to protect a deposit will still be excluded from using Section 21 to end a tenancy.

So that, in effect, brings us back to 2007, with a few tweaks to the wording and a bit of fine tuning. The 3 schemes remain the same.

All of the anomalies raised by judges in the last 4 years seem to have been addressed and things will get tighter once the Localism Act comes in. So expect housing advice units and lawyers getting more strident in their arguments. They are going to be much more confident about advising tenants in non protection cases after April.



Comments

16:13 PM, 3rd January 2012
About 7 years ago

Perhaps there should be some requirement to include on an AST an excerpt of the deposit regulations relating to DPC's.
This as both landlord and tenant sign the AST and are surely cognisant of the contents of the AST!?
The I didn't know response would clearly not stand up in  court if both parties signed up to a legally binding agreement,  namely an AST.

Ben Reeve-Lewis

17:49 PM, 3rd January 2012
About 7 years ago

Landlord and tenant ignorance inform a lot of this, which is surprising getting on for 5 years after the law came in. Just another example of the way that so many landlords and tenants think of a letting arrangement as a casual handshake affair, which beggars belief

All ASTs are liable for deposit protection. Prescribed information, when I see it done properly is written into the tenancy agreement, that way there is no argument either way.

And as you suggest Paul, ignorance of the law is no defence. You would be amazed at how many landlords still deliberately avoid having to protect a deposit, which is crazy. My Deposits and the TDS are both insurance based schemes, so the landlord can still keep the money in their own bank account earning interest, its such a no brainer for the want of a small registration fee

Glenn Ackroyd

11:13 AM, 5th January 2012
About 7 years ago

Excellent post.

The problem with the deposit schemes, is that the bureaucracy of lodging and reclaiming makes them not worth the hassle for most of our tenancies. 

Admittedly, if it was London with high rents, I can see the case. But with rents around £500/m - It is very easy for a tenant to 'dodge' the need to wait to reclaim the deposit by missing the last months rent - thus leaving the landlord messing around filling in forms, trying to get a solicitor to swear an oath etc.

From day 1 of the new legislation, I've not taken a deposit and simply get home owner guarantor's. I see no reason to change.

Ben Reeve-Lewis

8:54 AM, 6th January 2012
About 7 years ago

Yeah its not without its problems and traditionally many tenants seeking my advice are nervous that they wont get their deposit back and hold back the last month’s rent to make sure. It was a practice that started before deposit protection legislation that has now become a habit.
 
Many landlords would tell their tenants that they weren’t going to get their deposit back when they left which is why tenants did it and why deposit protection was brought in.
 
The biggest problem with the scheme that I see that is never mentioned for some bizarre reason, is the amount of time it takes even uncontested deposits to be returned. Landlords have up to 10 days to return it and it is common practice to wait out the entire period. Meanwhile tenants need the deposit to move into their new property and unless they have a spare £1,500 lying around often find themselves sofa surfing for 10 days in between properties.
 
It may be the area I work in but I would say that even now, 5 years on, a good 30% of PRS landlords I meet still don’t know about it and a further 20% steadfastly refuse to use it. I would say that about 75% of my tenants have never even heard of it

John Bolland

12:50 PM, 9th January 2012
About 7 years ago

What about some laws to protect landlords from tenants who do not pay rent, and trash the place. 
In my view some vile and unreasonable actions by tenants need turning into criminal acts giving landlords some protection.

3:03 AM, 10th January 2012
About 7 years ago

Unfortunately this will never happen.
The County Courts are on the side of wrongun tenants.
The only way to protect yourself is to obtain a RGI policy.
As soon as the tenant does not pay the rent due; immediately make a claim on the RGI  policy.
Even if the tenant was due to leave the following month.
They are not allowed to use the deposit for the last months rent..
I now take 2 months rent as a deposit and protect it with mydeposits.
The ONLY scheme which allows the landlord to retain the deposit monies.
Advise them that as soon as a claim is made on the RGI policy they WILL end up with negative information on their credit files.
They will have a CCJ put on the files by the RGI company
The RGI company will pursue them; maybe via a garnishee order.
The tenant WILL have negative information on their credit history for 6 years
The RGI company will attempt to obtain an attachment of earnings order against them.
They will also try and have have bailiffs obtain goods from this tenant.
The tenant is very unlikely to be able to obtain another tenancy .with all this negative activity.
The RGI company will attempt all this from the guarantor if the tenant didn't qualify for the RGI policy.
LRs and tenantid would be advised about the tenant not paying.
All this will be done at NO cost to the landlord.
I warn all my tenants of ALL of the aforementioned circumstances.
I find it concentrates their minds nicely!
If the tenant goes the claim against them will still continue and you will have received any rent monies you are owed.
Use these stragegies and you should never be out of pocket again.

Teresa Cooper

11:47 AM, 22nd July 2016
About 2 years ago

Hi Ben,

Could you clarify something for me. My ex tenants deposit was taken by my agent in Dec 2010 but they did not protect it until 5 weeks later. The tenant received his PI in time. He is now trying to sue me but am I right in thinking that the Localism Act will have benefited me or, as some articles I have read, it only covers those that were never protected as opposed to protected late. I'm a little confused. Regards. Teresa Cooper.


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