Statutory compensation for failure to protect tenancy deposits

Statutory compensation for failure to protect tenancy deposits: dealing with claims by one of a number of co-tenants

Summary points

1. Section 213 of the Housing Act 2004 requires private landlords to protect tenancy deposits in an authorised scheme and to serve “prescribed information” on tenants within a 30-day period.

2. If either or both of these obligations are not complied with, the tenants may make a claim in the County Court under section 214 for compensation of between one and three times the deposit.

3. If the deposit in question was paid by or on behalf of multiple tenants, the correct interpretation of the statute, read alongside the Civil Procedure Rules (CPR), seems to be that all of those tenants should be party to such a claim, or should authorise one (or more) of their co-tenants to conduct the claim on their behalf.

4. If a claim is encountered which does not comply with (3), and the claimant fails to remedy this procedural error, an application should be made to strike out the claim and/or seek an unless order, together with costs. This protects the landlord’s position and might assist in achieving a favourable settlement of the claim.

Background

The statutory provisions governing tenancy deposit schemes in Part 6 of the Housing Act 2004 (the “Act”) will be familiar to residential property lawyers and to many private landlords. Failure to comply with the requirements imposed on landlords can hinder subsequent attempts to recover possession of the property under section 21 of the Housing Act 1988 and also expose the landlord to a claim by the tenant for statutory compensation. This article considers the latter scenario and in particular the situation where a single deposit is paid by one tenant on behalf of several other co-tenants.

Deposit protection in outline

Within 30 days of the date on which a tenancy deposit paid in connection with an assured shorthold tenancy is “received” by a landlord, a landlord must do two things.

1. First, the landlord must protect the deposit in an authorised tenancy deposit scheme. Upon protecting the deposit, the landlord will receive a “deposit protection certificate”.

2. Second, the landlord must give to the tenant “prescribed information” concerning the operation of the scheme and the tenant’s rights and remedies.

Statutory compensation for non-compliance with Section 213

Where a landlord fails to comply with either or both of these deposit protection obligations the tenant can make an “application” to the County Court. The claim may be made whether or not the tenancy has ended.

If the Court is satisfied that the landlord has failed to comply with its obligations, the Court must (if the tenancy is ongoing) either order the deposit to be repaid or for it to be paid into an authorised scheme. If the tenancy has ended at the time that the Court considers the application, the Court has a discretion as to whether to order the deposit to be repaid to the tenant, and if so whether to order full or partial repayment.

In either case, 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 14 days. This is the “statutory compensation”. In deciding how much to award, the Court should have regard to all relevant factors, but the primary focus is on the landlord’s culpability: in other words, the seriousness of the landlord’s failure to comply with her obligations.

What if there is more than one tenant?

Take the situation we recently encountered: a landlord grants an AST of a flat to four tenants for one year. One tenant, T1, pays the deposit to the landlord. This is the only deposit paid and presumably, the other tenants reimbursed T1 a proportionate share of it. In breach of his obligations, the landlord protects the deposit late (after the 30-day period) and does not serve the prescribed information. The first tenancy expires, a second fixed-term tenancy is granted, and one of the tenants changes. The second tenancy expires and then becomes periodic, and the tenants change again. Only T1 remains in occupation throughout and the original deposit simply continues to be held in the scheme. The deposit is refunded to T1, in part, when she vacates.

T1 then makes a claim for compensation under section 214 of the Act as sole claimant. Is this permissible, or do all of T1’s co-tenants need to be party to the claim?

T1’s various co-tenants should either be parties to the claim or give T1 their express authority to conduct the proceedings on their behalf. In the authors’ recent case, the following argument on behalf of a landlord was made before a Deputy District Judge with success:

  • Section 214(1) of the Act requires the application to be made by “the tenant”. Section 6(c) of the Interpretation Act 1978 provides that words used in statutes in the singular include the plural unless the contrary intention appears. There is no contrary intention in section 214 or its surrounding provisions. So the reference to “the tenant” in s.214(1), and to “the applicant” in s.214(4), must be read as referring to “the tenants” collectively in circumstances where there is more than one tenant under the tenancy agreement. At the very least, this must be the case where one deposit is paid in relation to the tenancy as a whole, as opposed to each tenant paying their own deposit.
  • Importantly, the requirements of the CPR then kick in: CPR r 19.3(1) requires that “Where a claimant claims a remedy to which some other person is jointly entitled with him, all persons jointly entitled to the remedy must be parties unless the court orders otherwise”.
  • This point has not been considered by an appellate court. However, in Gladhurst v Hashemi [2011] HLR 36, it was common ground that an application under s.214 was required by CPR r 19.3(1) to be made by all the tenants as co-claimants. Patten LJ, at [16], appeared to approve of this agreement, albeit that the claim was held to be properly constituted by the sole applicant having acquired her co-tenant’s consent for her to conduct the proceedings on his behalf.

In the case defended by the authors, the legal position was accepted by the Deputy District Judge. Rather than strike out the claim, however, the Judge accepted an undertaking by T1 to share any award of compensation between herself and her co-tenants (in shares to be determined between themselves) and ordered that T1 take all reasonable steps to join her co-tenants to the claim, or alternatively to procure their authority for her to conduct the claim on their behalf, within 14 days.

Strategic and practical considerations

The advice for landlords faced with a claim for compensation brought by one tenant only (in the context of multiple co-tenants) is:

1. Write to T1 (or her solicitors) and invite T1 to join all her co-tenants as co-claimants to the claim. Failing that, invite T1 to procure the express authority of her co-tenants for her to conduct the proceedings on their behalf and require T1 to give an undertaking to share any award of compensation made with those co-tenants in full and final settlement of all claims which might by brought by any them.

2. Put T1 on notice that, should she fail to do so, an application will be made to strike out T1’s claim or, in the alterative, to obtain a similar order to the one obtained in our case, together with costs.

3. If T1 does not yield, make the application. If a favourable costs award is obtained, consider using this as part of settlement negotiations.

How is the compensation distributed between co-tenants?

The statute itself provides no mechanism for the distribution of compensation and there is no instinctively correct answer: should the compensation be split equally between the tenants, for instance, or should it be divided between the tenants’ respective periods of occupation, if these are unequal?

Our advice would be to push for T1 to give an undertaking of the form given in our case: any award of compensation made by the Court in determining the claim is to be in full and final settlement of all claims which might be made by any of the co-tenants in relation to the deposit; and T1 shall share any award of compensation made in her favour with her co-tenants, in such shares to be agreed between them.

The importance of ensuring that claims for statutory compensation under section 214 are dealt with in this manner is that it aims to prevent successive claims by each co-tenant, each claiming between one and three times the amount of deposit paid on behalf of all of them. This could hugely inflate the landlord’s liability. If all tenants are joined to the claim as co-claimants, or if at the very least they authorise T1 to obtain an award of compensation on their behalf, to be shared between them, any attempt by the others subsequently to bring their own claim for compensation in relation to the same deposit would surely be an abuse of process or else precluded by cause of action estoppel.

Gregory Ostroff, solicitor at Streathers Solicitors LLP

Gavin Bennison, barrister at Falcon Chambers