Tenant Deposit Schemes not quite the protection we thought?

August 17, 2011

The protection introduced by legislation brought in by the last Government and  designed to prevent the loss by tenants of their deposits to unscrupulous landlords received a crushing blow in the recent case of Gladehurst Properties -v- Hashemi.

The intention was to provide a mechanism for both the safeguarding of deposits during the tenancy and for the resolution of disputes at the end of the term. Most significantly the Court could order a penalty of up to three times the deposit to be paid to a tenant if a landlord failed to comply with the "initial requirements" of the legislation which includes the registration of the deposit with a recognised tenancy deposit scheme within 14 days of receiving it. (s214(4) Housing Act 2004).

In the case of Gladehurst Properties -v- Hashemi the landlord did not register the deposit and, at the end of the term, retained part of the deposit in order to rectify breaches by the tenant of its repairing obligations in the tenancy agreement, paying only the balance to the tenant.

The tenant subsequently discovered that the landlord had failed to comply with the requirements of S214 in relation to the deposit and claimed a sum from the landlord equivalent to three times the original deposit, being approximately £19,000.00.

On appeal from the County Court decision in favour of the tenant, the Court of Appeal found in favour of the landlord’s argument that the power of the Court to order a landlord to make the penalty payment to the tenant only applied during the subsistence of the tenancy. Once the tenancy had ended and the deposit returned to the tenant, whether in whole or in part, the Court could not make the payment order.

Commentators warn that the outcome of this appeal may encourage unscrupulous landlords to risk non compliance with the registration provisions on the basis that the majority of tenants will be unaware of the implications of non-registration until the end of the tenancy when a dispute arises and when the likelihood is that it will be too late for it to benefit from the compensation provisions.

An tenant who has been assured by a landlord or a letting agent that its deposit is protected under a tenancy deposit scheme should check well in advance of the termination of the term of the tenancy that the deposit has indeed been registered. Only if it has been will a tenant have the benefit of the dispute resolution assistance from the scheme administrator if there is disagreement as to the retention of the deposit at the expiry of the term. If it has not been registered the Court can order payment of the penalty if the landlord fails to register it within 14 days so this simple check can benefit a tenant in more ways than one.

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