Landlords free to ignore deposit protection deadlines

Ever since Peter Rachman's exploits came to popular attention half a century ago, governments have tried to protect tenants from some of the more unscrupulous practices of those offering private properties for rental. Unfortunately, the recent decision of the Court of Appeal in Tiensia v Universal Estates [2011] 1 All ER 1059 looks set to reverse parliament's best intentions.

Since the Housing Act 2004 came into force on 6 April 2007, any landlord offering an assured shorthold tenancy has been under an obligation to place any security deposit provided by a tenant into a secure and approved tenancy deposit scheme (TDS). The purpose was to provide protection for tenants against landlords seeking to retain either whole or part of the deposit after the tenancy came to an end.

The legislation put in place strict deadlines for a landlord to protect the deposit and provide the tenant with relevant information about the particular scheme under which it is protected. Any failure to comply meant landlords could be ordered to pay the tenant three times the original deposit amount.

Landlords were also prevented from terminating a tenancy where the deposit had not been protected.

The TDS aimed to create a regime that incentivised landlords to comply as quickly as possible after the start of the tenancy.

Unfortunately, the TDS legislation was drafted in lamentably unclear terms. As a result, courts have been increasingly unwilling to apply what are seen as draconian sanctions against landlords who fail to properly protect a deposit. Because the sums of money usually involved in such deposits are small in comparison to the expense of litigation, very few claims have reached the higher levels of the court system.

As a result, there has been a lack of binding case law to guide the lower courts.

The Court of Appeal first heard oral argument in Tiensia v Universal Estates in May but produced its decision only last week.

By a majority of two judges to one, the court held that a strict interpretation of the wording of the Housing Act 2004 meant that effectively landlords were under no obligation to protect their tenant's deposit or supply them with the relevant information within the 14-day limit set down in the legislation. In fact, the decision recognised that a landlord will be able to avoid all sanctions contained in the legislation, provided he ensures the deposit is protected at any time before a court gives its ruling.

The overriding objective of the TDS, according to Lord Justice Rimer, was to persuade parties to act "in a way that avoids litigation". But this decision appears to have created the opposite situation, whereby tenants will be forced to bring proceedings and pursue them right to the end in order to ensure that a deposit is properly protected. Rimer partially acknowledged this but argued that in the "overwhelming majority of cases the net result will be that the legislation will have achieved its primary objective, that of the due protection of the tenant's deposit". He added: "What more can reasonably be asked of it?"

From a tenant's perspective, the answer to Rimer's rhetorical question was provided by Lord Justice Sedley, who gave an unusually strongly worded dissenting decision. He stated that if the majority decision were right, then "no tenant could ever sensibly be advised to sue [the landlord] for the penalty". The effect would be "to eviscerate the legislative scheme", thereby frustrating the intention of parliament.

Interestingly, as Sedley pointed out, no argument was either furnished or requested to ascertain what the intentions of parliament were in passing the legislation.

Christelle Tiensia, the tenant, is currently seeking permission to appeal on the issue to the Supreme Court. Given the split decision of the court of appeal and the wider importance of this point, this issue seems likely to vex tenants and their lawyers for some time to come.

http://www.theguardian.com/law/2010/nov/15/landlords-free-to-ignore-deposit-protection-deadlines