Correct deposit protection for Assured Shorthold Tenancies is one of the more common mistakes made in setting up a tenancy. Whether it is an inexperienced landlord who is not sure of what they are supposed to do or an experienced letting agent who fails to notice a payment coming through. Failure to register the deposit correctly can have implications for service of a section 21 notice but also a significant financial penalty. This blog is not designed to cover the requirements to register a deposit in an assured shorthold tenancy in too much detail (this may be a topic that we look at in the future) nor the effect on section 21 notices. This is instead looking at what sort of financial penalty is likely to be awarded once a breach has been admitted/determined.
First we look at the legislation with section 214(4) Housing Act 2004 setting out that:
˜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.
Whilst this is not the only penalty that can be attributed for failure to properly protect a security deposit paid for an Assured Shorthold Tenancy, it is the one that has more of a range of outcomes. If the award must be at least an amount equal to the deposit and not more than three times, what factors are used to work out what figures should be awarded?
Culpability:
The idea of a sliding scale is that it would account for varying degrees of breach. A fixed penalty would mean the same amount would be payable by a landlord who had intentionally not protected with one of the three government approved schemes to put the tenant is a vulnerable position and a landlord who due to an admin error had registered the deposit 31 days after receiving it. This is not the intention of the legislation and the sliding scale of penalty is designed to penalise the party who is more flagrantly in breach, more seriously.
The case of Okadigbo v Chan [2014] addressed this particular issue. On appeal Justice Males came to the conclusion that:
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.
The original judgment that Justice Males is referring to is Judge Carrs findings that:
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.
Clearly judges have the ability to refer to culpability, although it should be noted that they are not obliged to.
Multipliers:
Often when Landlords and managing agents make an error at the start of the tenancy, this is an error that goes uncorrected throughout the tenancy. This can lead to a situation where a layperson may assume there has only been the single breach i.e. the failure to protect the deposit at the beginning of the tenancy, but in actuality due to any extensions and using authority from past cases such as Superstrike Ltd v Rodrigues (2013) the breach is committed again at each extension or when a tenancy reverts from a fixed term into a statutory periodic.
There is little in the way absolute authority on this point with similar cases coming to conflicting decisions. In a non-binding case, Howard Davis v Scott decided that there was no entitlement to a multiplier. However this does appear to be the anomaly. Most recently in Sturgiss & Anor v Boddy & Ors (2021) it was determined thateachchurn of the tenancy there was a new responsibility to ensure the deposit was protected properly. Whilst this case was looking at the assignment of a tenancy, given this was HHJ Luba QC, it is strong authority to rely on even if the facts of the specific case are not identical.
There is plenty of scope for both parties to argue their case should a dispute of this kind break out, with lots of case specific factors to be taken account of, for which either party would benefit from specific legal advice. However, what these issues hopefully highlight more than which authority to follow, is the importance of the pre-tenancy checks to make sure a mistake does not happen and if it does that tenancies are reviewed at suitable intervals so that any breach is noticed and as much as possible remedied so that the level of breach does not get exponentially worse as the tenancy continues.
If you do find yourself in the situation and further advice or representation is required, we can be contacted on [email protected] to provide a quote.
