What then, of the position, which is common enough, of the landlord who does not protect the deposit and the tenancy subsequently comes to an end?

 

In Potts v Densley [2011] EHWC 1144 (QB) Sharp J held that the “landlord” and “tenant” continued to be so for the purposes of s. 214 Housing Act 2004 whether the tenancy had been determined or not. Their position as landlord and tenant crystallised at the moment the deposit was paid (para 53). In that case the deposit had been secured before the hearing but after the termination of the tenancy, the landlord avoiding the penalty following Tiensia.  

 

Thus in cases where a landlord had acted in wholesale disregard of the TDS protection provisions, he could not escape sanction merely because the tenancy had ended; he was still required (post Tiensia) to protect the deposit prior to the hearing of the tenant’s s. 214(4) claim.

 

Potts has now, on that issue, been impliedly overruled by the Court of Appeal in the case of Gladehurst Properties v Hashemi [2011] EWCA Civ 604.

 

In that case, the tenants had paid a substantial deposit. It was never protected, but simply paid into the landlord’s bank account. There it remained when the tenancy came to an end, the tenants vacating the flat. A substantial part of the deposit was returned thereafter, with a deduction of around £1,000 for cleaning and making good alleged disrepair. The tenant requested a breakdown of those stated costs, and put the landlord on notice that he would issue a claim under s. 214(4) for 3 times the deposit.

 

The Court of Appeal stated:

“The point is not an easy one but I have come to the conclusion that the power of the Court to make an order under s. 214(3) and (4) is no longer exercisable once the tenancy has come to an end.”(para 37; see also para 42).

 

This was at least in part because s. 214 envisages that it must still be open to the court to make both a s. 214(3) order returning the deposit or ordering its protection and a s. 214(4) order, the penalty for non-compliance.

 

The tenant’s remedy, according to the Court of Appeal, was to secure enforcement by taking proceedings during the currency of the tenancy (para 38).

 

This perhaps misses the point that (a) the tenant may have a reasonable relationship with the landlord and want the tenancy to continue after the expiry of the fixed term. Issuing proceedings for a penalty is unlikely to assist; (b) that the landlord would still be able to comply at any time up to the hearing of the application (having had, therefore, considerable notice of what was required) and (c) in those circumstances the tenant’s only remedy is in relation to the costs of the application. That is in reality no remedy at all.

 

Hence, on current authority, the s. 214 consequences:

Must be sought by the tenant prior to the termination of the tenancy;

Can be avoided by the landlord at any time up to the hearing of the application.

 

Accordingly the common scenario where the landlord returns all or part of the (unprotected) deposit after the end of the tenancy and then brings a claim for alleged dilapidations is not precluded. The tenant is left without a remedy for the landlord’s clear default. The TDS was in part to ensure that ADR was the route for determination of such disputes, a quick, cheap and effective way of resolving them. The likelihood is that more will end up in the small claims court.

 

Leaving the tenant with no remedy on a s. 214(4) application during the current tenancy save for potentially an application for costs (which frankly, is not worth the candle) is, as Sedley LJ said in Tiensia an “evisceration” of the statutory scheme. Not applying that scheme to cases where the tenancy has come to an end is a further nail in its coffin.

 

The only realistic scenario in which the penalty will be claimed is in a counterclaim following a claim for rent arrears. The landlord would, however, still have time to avoid sanction following service of the counterclaim prior to the hearing of it.

 

The only “teeth” left in the statute for failure to comply, therefore, consist of the bar to service of a s. 21 notice (s. 215). Should a negligent landlord have failed to protect the deposit and find the notice thereby invalid, he simply has to protect the deposit and start again.

 

The purpose of the statute was penal. Its intention was to penalise landlords who through neglect or wilful disobedience did not protect the deposit within 14 days. The Court of Appeal has given the statute a literal construction, and in doing so, has effectively removed all but one of the statutory penalties. The scheme for protected holding of deposits and ADR for end of tenancy disputes is now in disarray. It is nearly a dead letter, and if Parliament feels it should not be, they have no option but to legislate further. If such legislation is forthcoming, it is to be hoped that it is clearer in its terms and obvious in its intent.

 

 

Tom Tyson