Another tenancy deposit problem – what happens when the receivers step in?

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

I have been contacted by a landlord who has drawn my attention to a thread on the popular LandlordZone forum:

“Briefly, the rental property has been in the hands of the receivers since July 2008. The receivers accepted the tenancy and collect rent from the tenant (the tenancy is now periodic). The deposit was originally protected by the landlord, however, Mydeposits cancelled the landlord's membership (and therefore the protection) because the landlord was subject to a receivership order, which is contrary to the rules of the scheme.

The deposit has not been paid to the receivers (so it appears they are not liable). The landlord cannot protect the deposit as it's against mydeposits' rules (I guess it's possible the DPS would accept it). Tenant may not succeed in a claim for return of the deposit because the tenancy hasn't ended. So, how can the tenant take action under s.214(1) to ensure the deposit is protected when firstly, the landlord did comply and the cancellation was not his decision, and secondly, the deposit has not been 're-paid' so can there be any duty to comply a second time when the landlord has complied once.

It seems completely crazy to me that the scheme is permitted to cancel a protected deposit in these circumstances - the whole point of the schemes is to protect against landlords/agents' 'bad' behaviour. Landlords cannot unprotect a deposit during a tenancy without evidence of reprotection, so why are schemes allowed to do this?”

This does seem to be a difficult situation and one that may become more common with more landlords falling into receivership. What do you think?

Landlord flouting the spirit of the tenancy deposit legislation says Judge

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

There is new tenancy deposit case report in the November issue the Legal Action Magazine, Da Costa v. Pinter, which took place at Bromely County Court in April 2009.

Here the tenancy agreement provided for a monthly rent of £1,950 but also stated 'Payment required in advance of £4,200'. The agents invoice described £2,250 of this sum as a deposit, and at the end of the tenancy the tenants asked for it back. As it was not forthcoming they issued county court proceedings for its return and also claimed the fine of three times the deposit sum. The deposit was then protected, after the issue of proceedings.

The Judge (District Judge Burn) accepted that the sum paid was a deposit and awarded the claimants the deposit money and the fine of £6,750. However the interesting part of this case is the quote from the Judge:

"The purpose of the Act is to try to ensure that landlords secure tenancy deposits in a recognised deposit scheme at the start of the tenancy, so that the deposit can be returned to tenants quickly when the tenancy ends, and that disputes about the deposit can be resolved under the schemes' procedures without the need for court proceedings.

Landlords who describe a deposit as something else, who do not secure it promptly in a deposit scheme as required by the Act, then fail to return the deposit when the tenant leaves (especially if this is without good cause, thereby forcing the tenant to start court proceedings to recover the money) but who then at the last minute after the tenant issues proceedings, pay the deposit into a scheme, are clearly flouting the spirit of the legislation and, on my interpretation, the letter also.

If the s213 and s214 remedies are not applied in a case such as the instant one, the Act would be rendered virtually toothless when landlords flout its provisions."

There have been suggestions, following on from the Sheffield Case (Harvey v. Bamforth), that a landlord is 'safe' so long as he protects the deposit before any court hearing. However I suspect that if and when a case ever gets to the Court of Appeal, the approach that they will take is more likley to be the same as that taken by District Judge Burn in this case.

Tenant in despair after DPS pays deposit to landlord

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

Most of the complaints I hear about regarding the Deposit Protection Service (DPS) are from landlords. However they are not the only sufferers. Today I received this cri de coeur from Miss C:

"The DPS paid my deposit back to my landlord in July 2009, despite me claiming it back. They claim they wrote to me, but I did not reply to their letter, so they gave the deposit to the landlord.

When I phoned them to find out what was happening to the deposit, they told me it had been paid to the landlord, I stated I had received no communication from them, asked why they had not phoned, they said they are not allowed to. I then asked why they had not e mail me, to see why I had not responded, they said they did not have to.

I have made 3 or 4 complaints to them, and sent a letter to their chief executive, who said they sent me a letter, I asked if he had proof of posting, he said no.

I am now in no mans land, I borrowed the deposit from my parents, so I have no deposit to put down on a new let, where do I go from here?"

Where indeed. There seems to be little comeback in this sort of situation. Miss C tells me

"The whole point is, they say they posted a letter to me, which I did not receive, and because I did not answer it they gave my deposit to the landlord. I asked them what happens if you are on holiday, they never replied. Surely they must be accountable to somebody?"

Does anyone have any suggestions? Have you had a similar experience with the DPS? If so, please leave a comment.

Tenancy Deposit Protection - arbitrations and inventories

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

I have recieved an interesting e-circular from the Deposit Protection Service. It is essentially correcting a circular they sent earlier to dissociate themselves from a company. However apparently they also said in that earlier circular:

“The DPS would recommend landlords obtain an independent Inventory because one conducted by a landlord or agent would not be considered independent in the event of a dispute”.

This has obviously caused behind the scenes problems, and no doubt vociferous complaints on behalf of landlords unwilling to incur (or unable to afford) the additional expense of an inventory clerk, as they now say:

"With regard to the statement concerning the validity of self-produced inventories, The DPS wishes to make clear that its Adjudication Service is obligated to consider all evidence placed before it when considering a Dispute and that there is no reason why an Inventory properly produced by a landlord or agent, which is duly signed by all parties in the correct way, should not be considered entirely valid."

However, notwithstanding this, I think the first statement is very telling, and probably reflects the real attitude taken towards landlords' own inventories. Landlords should take note therefore that independent inventories conducted by an inventory clerk are likely to be given greater weight at arbitrations than one done by themselves.

Tenancy Deposit Scheme to be set up in Scotland

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

It has recently been announced by the Scottish Parliament that a tenancy deposits scheme is going to be set up in Scotland. This has been welcomed by the Scottish National Union of Students, Shelter Scotland and ARLA.

There is also a report on the BBC site where perhaps predictably, there are objections from Scottish Association of Landlords, who say the scheme is not needed and is disproportional to the actual problem. The BBC report points out however that 'evidence from England and Wales suggests that as many as half of disputes over deposits feature unjustified complaints by tenants.'

I cannot see a time scheme in any of the reports so we do not know yet when it is likely to be introduced. I only hope they take a bit more care with drafting the legislation, so as to avoid the problems which have beset the tenancy deposit scheme in England and Wales.

The Dispute Service Annual Report

The Dispute Service have published their annual report, which can be downloaded from their web-site (a direct link is here) and it makes interesting reading. I list below the points which struck me.

Generally it looks as if the service has been under some strain during the year, due partly to the increase in tenancies covered and partly due to a huge increase in deposit disputes. Interestingly the report states that the majority of the disputes come from a small number of agents, which, they say, is going to be reflected in the subscriptions (presumably to the offending companies).

The case of Harvey v. Bamford (reported on this blog here) caused them some concern, resulting in a chance of their terms and conditions to reinforce the requirement for landlords and agents to both protect the deposit and serve the notice on tenants within 14 days of receipt of the deposit money. Which, they say was the intention of the act.

There is some discussion of the insolvencies among a few unregulated agencies, which between them resulted in lost deposits of over half a million pounds. The result of this was an increase in premiums and the withdrawal of cover from unregulated agents (reported on this blog here). Apparently half of the agents affected joined NALS and so were able to continue their membership.

There has been a massive increase in deposit disputes in the past year. This was not entirely unexpected, although the number is higher than anticipated, and has caused TDS problem. The report suggests that agents should make more effort to resolve these, rather than just passing the decision on to TDS. The majority of the disputes appear to be about standards of cleaning. TDS has suggested that tenants be given a list of approved cleaners so that if one of these firms are used, the tenants will not be held responsible if the level of cleanliness is subsequently criticised.

Even though all of TDS membership is now presumably regulated agents (save for a few landlords) it is surprising (or perhaps not) that the report complains about poor reporting and documentation provided by agent members. As many landlords will attest, even being a member of a professional organisation does not appear to give any standard of quality.

The report ends with a selection of interesting arbitration cases, which are worth reading.

DPS - tenant with CCJ unable to claim back tenancy deposit

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

A tenant recently wrote to me with a sad story:

"I vacated my property in February 2009, and due to the DPS not returning my deposit I became homeless. As the landlord and I were in dispute over the return of the deposit I had no option that to pursue the claim through the county court.

I did so and on Sept 3rd I attended court and was awarded the claim in my favour. I sent a copy of the General Form of Judgement or Order to the DPS and was advised under their terms and conditions (which I have never seen before) they cannot release the deposit as the order makes no reference to the DPS, but does state the landlords name.

This seems outrageous to say the least, and has caused me to have even more depression and stress. Can these people really hold me to ransom like this. I have been awarded the money and all I want is the return of my deposit.

I am not entirely sure why the lady did not use the free arbitration service provided, but we have always been told that landlords and tenants are free to use the County Court instead of arbitration if they prefer. I have had a look at the DPS terms and conditions though, and they do indeed say at clause 17:

"The DPS will not release any part of the Deposit unless it has: ....
iv. a Court Order which refers specifically to the Deposit and/or the scheme administrator and the amount of the Deposit to be paid out."

However it does seem very unfair that this lady should be deprived of her money (and we always have to work from the premise that the deposit is the tenants money) simply because the DPS have put this clause in their terms and condition. How many tenants, who after all are ordinary people and not lawyers, are going to read the detail of the DPS terms and conditions before issuing proceedings? It is not something that would occur to most people.

What do you think about this? Do you have any suggestions as to how this lady can get her deposit returned to her?

Tenancy deposit protction - now only 30% failure

In July 2008 I did a post called Tenancy Deposit Protection - 62% failure which was based on a survey done by the Deposit Protection Service (DPS), one of the three tenancy deposit protection schemes. This survey said that 62% of landlords were flouting the law and not protecting tenants deposits as they should under the tenancy deposit protection scheme regulations, which came into force in April 2007.

One year on, the DPS have done another survey, and this shows that the situation has improved. However 30% of landlords are still openly admitting that they are not registering deposits. This is despite the fact that any s21 notices served on the tenant will be invalid until the deposit is protected, and that the tenant can also go to court and claim a 'fine' of three times the deposit money.

The conclusion reached by the DPS is that the government's idea of having a national register of landlords should be implemented. Many landlords however are stongly opposed to such a scheme.

Perhaps the best solutions would be

(1) to make sure that the requirment to protect deposits is widely known (so tenants are more likley question landlords this), and
(2) to make it easy for tenants to claim the penalty from non compliant landlords.

The the word is gradully getting out (which is probably why more landlords are now protecting deposits), but claiming the penalty award can still be a nightmare. The legislation has proved to be so problematic that no-one really knows where they stand. As can be seen from other posts about tenancy deposits on this blog!

What do you think is the best solution?

Tenancy deposit arbitrations - why landlords keep losing

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Reading through the excellent 'Landlord & Buy-to-Let Magazine' today (September/October 2009 issue), I particularly enjoyed reading the landlords diary at the back by Barry Brunton. This gave some interesting background information on tenancy deposit arbitration's, which I thought I would share with you.

I was especially interested as a number of readers of this blog have posted their complaints about too tenant friendly arbitrators, for example here. In the context of this, Barrys article is quite enlightening.

He makes the point first that the tenancy deposit belongs to the tenant, and the landlord, if he wants to make deductions, is making a claim which he will have to prove by evidence. And if you do not provide this, you will lose your claim, the arbitrator is unlikely to write and ask you for it. For example:

• Inventories - these need to be a detailed condition report on the property not just a list of the furniture in it. To make a claim for damage to furniture (for example) you are going to have to prove that it was in good condition at the start of the tenancy. It is best that this is done by an independent firm of inventory clerks
  
• You will also need a check out report, again this should be done by the independent inventory clerks
  
• Photos are generally of no value as they could be of anywhere. Presumably if they are signed by the tenant and inventory clerk on the reverse and dated they should be acceptable. If used they should be clear and have something (such as a ruler) to show scale.

Barry then explains how an adjudicator would approach a claim for a damaged carpet.

• He would want to know the condition of the carpet both at the start and at the end of the tenancy
  
• Evidence of when it was purchased
  
• The cost of replacement
  
• And the normal life of such a carpet
  
• He would consider whether it could instead have been cleaned
  
• Or whether any stain is relatively insignificant and can be left
  
• In his award he will consider fair wear and tear
  
• And base his award on the cost of replacement carpet but not underlay
  
• For a ruined 3 year old carpet, the landlord (he says) will be lucky to get 40%, even if he can prove everything, as a tenants deposit is not a 'new for old' insurance policy

This is a bit different from in the old days, when the landlord would just deduct the cost of a new carpet leaving the tenants to sue him at the county court if they disagreed.

It seems that adjudicators also expect landlords to post notices explaining how things work and will accept a tenants excuse that he did not know (and therefore is not responsible for damage through misuse) even if the landlord has provided manuals. For example in one case, a tenant ruined a lawnmower by not putting oil in, but he successfully argued that he should not be held responsible as there was no 'check oil before use' notice on the mower, even though this was set out the manual he had been given.

I am beginning to see why landlords are often so incensed at arbitration results. I agree that the landlord should have to prove his case, but this seems a bit too much. I wonder whether a Judge in a County Court case would have come to the same decision.

Have you any stories to tell? If so please post a comment.

In the next issue, Barry is going to talk about adjudicators dealings with claims relating to gardening, condensation and tenants changing. Order your free copy now.

Tenancy deposit roundup

A few matters on the subject of tenancy deposit protection which I have been meaning to comment on for a while.

The August issue of Legal Action Magazine has two cases on tenancy deposit claims, which go to support tenants claiming against landlords who breach the tenancy deposit regulations. If you want to read the full stories, this is set out in Nearly Legal. However just to summarise:

Woods v.Harrington
This case involved a landlord who protected the deposit so late it was after the tenancy agreement had ended. The Judge held that was 'not only contrary to the letter of the law but is contrary to the spirit of the law and the public policy considerations that Parliament was seeking'. The landlord lost and was ordered to pay the penalty fine of three times the deposit sum for being in breach of the tenancy deposit regulations.

Delicate v. Sandberg
Here the landlord served the s21 notice before the deposit was protected. However notwithstanding this, in the absence of the tenant in prison, they obtained an order for possession and possession of the property via the bailiffs. On being released from prison, the tenant re-entered. The Landlords applied for an order for restitution, but the Court held that the section 21 notice had been invalid, the possession order should be set aside.

The swarb forum
My client Alan (you know who you are) has also drawn my attention to two interesting posts on the www.swarb.co.uk forum:

1. This one says that a tenancy deposit case it to be taken to the Court of Appeal, funded by one of the landlords associations. If anyone has any more information about this, please leave a comment.

2. This one is an interesting post looking at the complexities of the TDPS legislation, pointing out that the wording appears to provide for the landlord to escape the penalty by paying the deposit at any time before the court hearing, and also discussing whether the legislation can apply to former tenants as well as current ones.

I will be doing a presentation on tenancy deposits for my talk for Professional Conferences in December, so would welcome any information readers may have about new cases and developments.

(Note - you can read all my other posts on tenancy deposits here)

Letting agents going bust - three top tips for landlords to protect your position

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:

1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.

If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.

For information, the main professional bodies are:

ARLA - the Association of Residential Letting Agents
RICS - the Royal Institute of Chartered Surveyors
NALS - the National Approved Letting Scheme
NAEA - the National Association of Estate Agents
The Guild of Letting & Management

2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a 'fine' of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.

Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.

The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.

3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:

• The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
  
• Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom

It would also be useful to have:

• Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
  
• Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).

If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.

Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.

My ten top posts on tenancy deposits (as @ 19/08/09)

I have done a lot of writing about the tenancy deposit protection scheme (TDPS) regulations and the problems they have thrown up. You can read them all of course by following the link to the tenancy agreements tag. But which ones are most worth reading? Here are ten suggestions:

1. Tenancy Deposit Protection - 62% failure

This has to be my most popular post ever. It was written over a year ago and still shows up in my stats as one of the most visited posts. It has an amazing 58 comments - people kept asking questions which I answered, until eventually I felt it was getting silly and stopped. If you ask a question there now I won't answer it, in fact it won't even get allowed in now, as the post is officially closed. It is still worth reading though, not so much for the post itself but for the questions and comments which follow.

2. Complaints about the DPS
This is another popular one in the stats, probably because of its title. Many people do have problems, with all the tenancy deposit companies, and this post (and the posts linked from it) gives some guidance on what you should do. In particular there are a few comments on using the Arbitration Act to challenge unfair decisions (a suggestion made by barrister Francis Davey). This post also features the fabulous DPS tea cosy.

If you have a complaint against your TDPS, you should also read:

3. Complaints against the DPS - the governments response
This reproduces a letter sent to one of my clients, who wrote to the Department of Communities and Local Government with a complaint about a DPS arbitration. With thanks to my client (you know who you are) for letting me reproduce the letter.

4. Deposit protection avoidance
This is another popular one and looks at ways landlords can avoid using the tenancy deposit protection schemes. It should be read in conjunction with:

5. Advance rent = deposit?
This looks at a case which throws doubt on the legality of the practice of taking two months rent in advance instead of one month and a deposit. This course of action is not recommended by me now (although before this case I thought, along with many others, that it was acceptable).

6. Landlords out of pocket for deposits - DPS may best best after all
This is an important post as it explains why landlords may be vulnerable if their agent becomes insolvent and the tenancy deposit money is lost.

7. Tenancy deposits with student lets
This is a helpful post for landlords with students, as it looks at what you should do if you have lots of tenants and guarantors signing at different times, before the start of the tenancy. With thanks to Roger for providing the information.

8. Four more cases on possession proceedings
There are many case reports on the Landlord Law Blog on tenancy deposits, but this post looks at four (although one is on licensing), and gives a useful overview of the relationship between the TDPS rules and possession proceedings. If you are interested in case law, you should also follow the link to read about the Sheffield case, one of the very few cases which have been appealed (although sadly, not to the Court of Appeal).

9. New tenancy deposit case - deposit paid before 7 April 2007
This considers a useful case (albeit, as with all of them, a county court decision) as it goes to prove what we lawyers have always thought. Ie that deposits paid before 7 April 2007 where the tenancy is renewed, are caught by the regulations.

10. Tenancy Deposit muddle
Finally, this is an example of the byzantine complexity of the TDPS rules, and how new interpretations are always springing up to ambush us, after we thought we had got a grip on them. With thanks to Alan who drew the forum post mentioned, to my attention.

***
So there you are. Ten posts (plus linked posts). These will give you a flavour of this, surprisingly complex, subject. If you want more, you will find them all here.

Case throws up injustices in the tenancy deposit scheme legislation

A very interesting article in the New Law Journal (NLJ) from Laura West, barrister, Arden Chambers and Marianne Rivett, solicitor, Kennedys (currently available here) highlights some of the injustices and inconsistencies in the current tenancy deposit protection scheme (TDPS) legislation.

The article considers a case heard in May 2009 in the Central London County Court, Jacklin v Fraser Property Management Ltd, T/a Martin and Co (Bedford). Here the landlord was supposed to protect the deposit but failed to do so. When the agent (the defendant in the case) discovered this, he arranged for the deposit to be protected. The landlord subsequently went bankrupt, and the tenants abandoned the property during the fixed term and stopped paying rent. However despite this, on discovering the problem with the deposit, they brought a claim for the penalty for default, which is the fine of 3x the deposit sum.

The Judge chucked the case out because the claim had been improperly brought by only one of joint tenants (something future joint tenants should note when bringing claims). However the Judge went on to point out various problems as he saw it which would have put him in an impossible situation, had he not been able to do this (this section quotes from the NLJ article):

- He found he would have been compelled to order that the defendant pay the penalty despite the clear arrangement between the defendant and landlord—a completely unjust result. The inequity of such a decision would have been compounded by the fact that the landlord had since gone bankrupt and, had it not been for the actions of the defendant, the monies would have been as good as lost to the claimant.

- Had he been compelled to order the payment of the penalty by either the defendant, or indeed the landlord, the claimant may well have benefited from an enrichment which would have been unjust since he had abandoned the tenancy during the fixed term—where the landlord did not accept the abandonment—and ceased to pay rent without any legal basis for doing so.

- s 213(3) would require the court to either order the person who appears to the court to be holding the deposit to repay it to the applicant (s 213(3)(a)) or order that the person pay the deposit into the designated account held by the scheme administrator under an authorised custodial scheme (s 213(3)(b)) within 14 days.

Any such order would be completely pointless in the circumstances since the deposit was already protected in the insurance backed scheme. Furthermore, were the deposit protected in a custodial scheme the court would be compelled to order the return of the deposit to the tenant (even where the landlord was entitled to a set off).

However, where the landlord had chosen the insurance scheme (as in Jacklin) the court could manipulate the system and merely order the transfer of the deposit funds from an insurance backed scheme to a custodial scheme pursuant to s.213(3)(b) in order to avoid returning the monies to the tenant.

The NLJ article then goes on to consider three other problems with the legislation:

(1) Set off: the Judge in this case appeared to think that he would have allowed set off, whereas in another case, Stankova v Glassonbury, the Judge refused set off on the basis that if the landlord had registered the deposit he would have been able to do this via the arbitration scheme. But then in another case in Tunbridge Wells, Davies v Smith, set off was allowed!

(2) New tenancy agreements. It now seems that deposits paid in respect of a tenancy starting before TDPS came into force in 4/07 will be caught if a new tenancy agreement is given to the tenant but this is not clear from the legislation, and

(3) Whether a tenant receive the benefits of the legislation after the tenancy has ended. The legislation does not define 'tenant' and it is arguable that it only means current tenants. Although I would say that this would also be unfair, as often tenants only discover that a landlord has failed to protect after they have left the property and seek to claim the deposit. They then find that the landlord unreasonably fails to return it and that they are deprived of the benefit of the free arbitration service, because the deposit is unprotected.

I think we will all agree with the NLJ article's concluding comments:

As a result of the draftsman’s haste to get this scheme on the statute books, it would seem that this supposedly “no fuss” mechanism for tenants has run into problems. County court judges seem increasingly perplexed that they are compelled to make orders within a rigid system, with the potential for inequitable and unjust results. This is in clear conflict with the original aims of the legislation. In giving his judgment in Jacklin DJ Lightman commented that “the sooner Parliament looks at this the better”. In the interim it would seem that there is a real need for guidance from the higher courts and, in the longer term, need for amendment of the legislation.

If you have found this summary interesting, I would recommend you read the original article in the New Law Journal. Authors Laura West, barrister, Arden Chambers & Marianne Rivett, solicitor, Kennedys.

Another TDPS case - Locke & Orchard v Osborn

I have just learned about this case decided at the end of June. Here Mrs Osborn was let down by her agents, Countrywide Residential Lettings who, despite having protected the deposit, had failed to serve notice on the tenants giving the prescribed information, or return the money within the proper period of time. As a result, an order was made that she should pay the 'fine' of three times the deposit amount.

The shocking thing about this case is that apparently the elderly landlord, suffering from dementia, had to be driven by her son from her care home in Norfolk to the court hearing in Portsmouth. Which not surprisingly she found completely baffling. This and the long journey seems to have been a pointless exercise and unnecessarily distressing to Mrs Osborn.

My initial thoughts were that it should have been possible to avoid this. For example solicitors could have arranged for representation at the hearing (there are professional companies which provide advocacy services). Mrs Osborn could have given evidence by way of an affidavit (presumably she would just say that she had left matters in the hands of her agents), and a medical certificate could have been obtained to excuse her non attendance. As the property was being managed by letting agents, they were the ones to give evidence, not her.

However as the whole problem was caused by the agents failing to deal properly, Mrs Osborn will have grounds to claim re-imbursement from them. In fact from the reports I have seen, it looks as if they accept this.

But this just goes to re-inforce the fact that landlords must protect tenancy deposits and serve notice with the prescribed information on the tenant. If both are not done the landlord is at risk.

Possible scam with tenants' deposit money

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

There has been quite a bit of publicity over the last few months about agents and the unjust charges they impose on both tenants and also the landlords they represent. The CAB did a report on this which I wrote about here. I have now been contacted by a tenant telling me about what he suspects may be another scam by agents (and potentially also landlords), although it is not something he can prove. I copy his email below:

I recently quit a tenancy in Bath and moved to London. The deposit on the Bath flat was held by the DPS [Deposit Protection Service]. I couldn't remember how much the deposit was, but I had the DPS letter saying it was £1050.

While clearing out some boxes, I found some more paperwork: the receipt from the letting agent that showed I'd paid £1575 deposit. I keep my bank statements, and these confirmed the deposit was £1575. The letting agent had placed £1050 with the DPS and kept £525.

A percentage of tenants - especially after a long tenancy - are going to forget the amount of the deposit and / or lose their original paperwork. At the end of their tenancy, they ring the DPS, establish themselves as entitled to the deposit and are told how much was lodged with the DPS. If the letting agent or landlord only lodged part of the deposit with the DPS, the letting agent / landlord get to keep the rest. If the tenant knows how much the deposit was and can prove it, they just apologise and agree to return it.

In my case, the letting agent accepted immediately what had happened, said they'd made a mistake and apologised.

I think it would be hard to detect this happening. I can't prove it wasn't a mistake. I should have checked the DPS letter when it arrived but even if I had, the letting agent would have apologised and placed the correct amount with the DPS.

The scam only works when the tenant forgets the amount and in that situation, they don't even know they've been robbed. The landlord / letting agent get to keep a percentage of deposits they handle. This can be a lot of money if only a small proportion of tenants "forget".

If nothing else this story emphasises the point that tenants must check everything so as to protect their position (and I would add that the correct amount of the deposit should be set out in the tenancy agreement). The agent in this case could have made a genuine mistake of course, but did they? Have any other tenants experienced this?

Tenancy deposits with student lets

Readers may be interested in hearing about the solution to a problem experienced by a Landlord Law member, Roger, who lets to students.

Roger uses a Shorthold Tenancy Agreement (four students per house) and formerly obtained a Rent Guarantee from the parents. The procedure then (i.e. before the introduction of the tenancy deposit protection schemes) was that he would take a deposit (so that they did not go elsewhere and not tell him, which has happened) and wait for the parents to return the Guarantee (which can take weeks). However he was concerned about this procedure after the introduction of the tenancy deposit scheme and whether it would bring into play the requirement to protect the deposit within two weeks of payment.

Roger needs to ensure that the 4 students who have confirmed that they wish to rent a house do not change there minds while he is waiting for their parents to return the signed Rent Guarantee. This is critical because the university issue their list of houses available early in February and if landlords do not rent their house soon after this date it can be very difficult finding tenants.

Roger spoke to an advisor at My Deposits who confirmed that it would be acceptable to take a sum from the tenants, e.g. equating to the first months rent, inform them that this is a 'non returnable holding sum', and not take the deposit until the parents return the Guarantee. At this point the Tenancy Agreement can be finalised with the holding sum covering the first month's rent, the further sum paid at that time being used for the deposit.

My Deposits also confirmed via email that this procedure was appropriate. Their email stated:

"I can confirm this procedure as advised by my colleague is correct. When the monies paid by the tenants is classed as a ‘non refundable holding fee’ this would not require a protection with our scheme until the agreement is finalised and the monies is classed as the actual deposit for the AST agreement. You would then be able to proceed with your deposit protection with our scheme and provide the tenants with the prescribed information as required under the current legislation."

Consultation on private housing in Northern Ireland

A report on the BBC web-site states that plans to overhaul the private rental sector are being considered in Northern Ireland.

The key proposals are -

• A central scheme for tenants' deposits so that landlords cannot simply refuse to pay back deposits for "flimsy reasons"
  
• Government deposit guarantee for vulnerable people who cannot afford them
  
• An independent body to manage disputes between landlords and tenants and encourage compliance with their tenancy agreement
  
• New fitness standards implemented by 2015. Landlords penalised if they do not meet these standards
  
• Much greater awareness of the rights of tenants and the responsibilities of landlords
  
• Longer periods of notice to quit for long term tenants.

You can read more about it in the press release from the Department for Social Development in the Northern Ireland Executive.

New tenancy deposit case - deposit paid before 7 April 07

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

***

This is a new case reported in the excellent Legal Action Magazine, Saad v. Hogan from the Brentford County Court.

Ms Hogan paid her deposit, £1,000, in November 2005. Her tenancy was renewed in November 2007. In June 2008 the landlord brought proceedings for possession based on the serious rent arrears ground. Ms Hogan counterclaimed for the 'fine' of three times the deposit amount on the basis that the deposit had not been protected, and asked that this be offset against the rent arrears.

The Judge at first instance found for the landlord and made the possession order. This was on the basis that there was no obligation on the landlord to protect the deposit, as no deposit moneys had been paid when the tenancy was renewed in November 2007, but only before the regulations came into force on 7 April 2007. Ms Hogan appealed.

The appeal Judge viewed the case differently. He found it extraordinary that there was no provision in the legislation for this situation. However the main purpose of the legislation was to protect deposits. Although there had not been any physical or electronic payment of money in November 2007, in a sense there had been a payment at that time. He allowed the appeal, and awarded £3,000 to Ms Hogan to be offset against the rent arrears.

As this case was an appeal to the County Court Judge it will have more authority than District Judge decisions. However it will still, technically, not be binding. It would be nice if this could go to the Court of Appeal, so this point could be settled.

However the case does support the view generally taken by lawyers, that deposits paid before April 2007 are caught by the regulations if a new tenancy agreement is given to the tenant after that date.

mytenancydeposit.co.uk - not a recognised tenancy deposit company

I, and probably many landlords and other property professionals, have received notifications from both The Deposit Protection Service and MyDeposits warning that the web-site mytenancydeposit.co.uk is not that of a government authorised tenancy deposit scheme.

Landlords and agents should beware. If you protect your deposit with this company, this will not constitute compliance with the tenancy deposit regulations. You will remain vulnerable to a court claim from your tenants for the 'fine' of three times the tenancy deposit amount.

There are only three companies you can protect your deposit with:

1. The Deposit Protection Service - www.depositprotection.com
   
2. My Deposits - www.mydeposits,co.uk, and
   
3. Tenancy Deposit Scheme (from the Dispute Service) - www.thedisputeservice.co.uk

Information on the My Tenancy Deposits site show that it is owned by a company called MTD Secure Limited. A search at Companys House shows that this company was incorporated on 28 January 2009,. The company has offices in Newhall Street, Compton in Birmingham.

91% of tenants suceed at arbitration say My Deposits

A news report out by My Deposits shows that 91% of tenants get their money back at tenancy deposit arbitrations. The report states:

"Figures from mydeposits.co.uk show 91 per cent of dispute cases settled by the scheme's independent adjudication service found in favour of the tenant. The average amount in dispute was £733, which is significantly lower than the average deposit of £1,052.

In only nine per cent of cases landlords and letting agents were able to withhold the full deposit."

However the report goes on to say that only a small proportion of deposits, 0.35%, actually go to arbitration. This could mean though that it is still largely only the good landlords who are protecting deposits, and that the bad landlords, the ones who will habitually make unjustified deductions, are still refusing to comply.

It would be interesting if the Deposit Protection Service could follow up their survey reported in July 2008 (and discussed by me here) that 62% of landlords were failing to protect.