How To Ensure The Lowest Penalty After Deposit Protected Late
Since changes made by the Localism Act 2011 section 214 Housing Act 2004 now provides that where the court is satisfied that the deposit was not protected within 30 days (or prescribed information not given in that time-scale), the court must order the payment of between 1 and 3 times the deposit-
(4) The court must order the landlord to pay to the applicant a sum of money not less than the amount of the deposit and not more than three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order.
The order may also order the deposit to be repaid.
Okadigbo & Anor v Chan & Anor  EWHC 4729 (QB), the tenancy commenced on 1 August 2012, and the deposit of £1,520 should have been protected within 30 days. However, the deposit was protected during the tenancy on 5 March 2013, and the prescribed information was provided on 8 July 2013. The tenant made an application for the penalty as a counterclaim to possession and rent arrears where at the first hearing it was held-
“Finally, the Defendant seeks a penalty pursuant to Sections 213 to 215 of the Housing Act 2004. Section 214(4) provides that in the event of a breach, and here the breach is admitted, I must award the Defendant a sum of money not less than the amount of the deposit and not more than three times the deposit. The Defendant contends for the maximum sum which would be three times £1,520, a sum of £4,560. The Claimant contends for one month’s rent in the sum of £1,520. I find that the Claimants are not experienced landlords, that this is the first time that they had let out any property and that they were letting out their home. That they quite properly put the matter in the hands of professional managing agents who let them down by not complying with the terms of the Act. I find this case to be at the lowest end of the scale of culpability for non-compliance. And for those reasons I award the sum of £1,520.”
The tenant appealed, submitting that the lack of experience as landlords and the fact that they put the matter in the hands of agents were matters of little weight when set against what was described as a severe failure to comply with the Act’s requirements for a considerable period. The tenant sought two times the deposit as a penalty accepting that-
there was a degree of mitigation in that the breach had been admitted and that there was in the event full compliance, albeit only after a period of delay.
The tenant’s appeal was dismissed by the High Court, where it was held-
In my judgment, however, the judge was entitled to regard the question of culpability as the most relevant factor in determining what order to make and was entitled to find that the culpability in this case fell at the lowest end of the scale for the reasons which she gave. It is not as if the breach was uncorrected and therefore, although the appellants were lacking the protection for a period of some months, in the end matters were put right.
Therefore, it is clear that the landlord is at least doing something with the deposit as soon as they become aware of a problem assisted. We would respectfully submit that had the landlord returned the deposit in full on 5 March 2013 rather than protecting it, the same conclusion would likely have been reached. That would have allowed service of a section 21 notice which protection alone would not. We would also suggest if protecting late, always ensure a new tenancy is done first.
According to Superstrike, the deposit will have been returned in full and then retaken for the new tenancy. It won’t stop the penalty for the previous failure, but the new protection will assist, as shown in this case, and this should allow a section 21 notice to be served about the new tenancy. As this theory has not been tested (to our knowledge) to be belt and braces, the following could be done in order-
- the deposit first returned in full,
- then a new tenancy is drawn up,
- then the deposit retaken and protected.
All this should be done with a paper trail showing each action, and that would be clearer that the deposit was returned in full thus allowing the future service of a notice. It’s clear from this case that the landlord employed an agent, and the agent failed to protect the deposit.
Most commentators believe that the landlord must always pay any penalty, even where somebody else caused the failure. It’s a perfectly fair view to take, but in Draycott & Draycott -v- Hannells Letting Limited  EWHC 217 (QB), the court held that the person who should pay the penalty is the person who is responsible for the failure to comply (assuming that person falls under the definition of the landlord, i.e. landlord or agent)-
In my view the words in s.214(3)(a) “the person who appears to the court to be holding the deposit” are not otiose. Rather, those words limit the scope of any possible order under s.214(3)(a) to the person holding the deposit, and prevent such an order being made against any other person who would come within the statutory definition of the landlord – for example a letting agent who, at the time of the making of the court order, was not holding the deposit. No such limitation would be appropriate in s.214(4). Unlike s. 214(3), which is an order for restitution made against the holder of the deposit, s.214(4) is penal, as Mr Browne points out.
There is no reason why the penalty should be imposed on the person who, at the time the court order is made, happens to be holding the deposit. The penalty should be imposed on a person who is responsible for the failure to comply with s.213. In the present case that is the Defendant, and not the actual landlord (assuming, at this stage, that there has been a non-compliance which attracts an order under s.214(4)). [paras 38 & 39)
Draycott was pre Localism, and Deregulation Act changes. However, these principles have not been altered by any of those amendments. It’s a shame these points don’t appear to have been raised in this case. As the nearlylegal blog points out, the tenant may have received more money had they pursued the agent at the same time as they wouldn’t have had the ‘inexperienced’ defence.
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Deposits and Tenancy Deposit Schemes
Many landlords take a deposit from tenants to hold for the duration of the tenancy. When the tenant moves out, this is returned to the tenant less any deductions permitted: typically for damage (above fair wear and tear), additional cleaning, and cover any outstanding rent. Note: deposits can only be withheld if stipulated what the deposit is being held against in the contract.