Tenancy Deposit Schemes - Is it possible to impose financial penalties on a landlord after a tenancy ends?


KEY ISSUE: A claim by a tenant for a financial penalty to be imposed on a landlord for failure to register a tenant’s deposit in a Tenancy Deposit Scheme must be made before that tenancy comes to an end.


A recent case in the Court of Appeal has clarified the position in relation to the court’s ability to impose a financial penalty on a landlord for non-registration of a tenant’s deposit after the tenancy has come to an end. (For further information on the requirements of registering a tenant deposit and the consequences of failing to do so, see our article “Tenancy Deposit Schemes – Consequences of Failure to Register a Deposit”).

A tenant is entitled to apply to the county court if its landlord has not complied with the requirements to register its deposit in an approved tenancy deposit scheme (TDS) or provided the prescribed information within the requisite period.  The court must then either order the deposit to be:

  • repaid or
  • paid into an authorised TDS
  • and order the landlord to pay the tenant a financial penalty equal to three times the deposit paid.

The question as to whether a tenant is able to make an application to the court to impose the statutory penalty against its landlord for failure to comply with provisions after the tenancy has ended was dealt with in the case of Gladehurst Properties Ltd v Hashemi & another [2011] EWCA Civ 604.

The landlord granted the tenant a 1 year assured shorthold tenancy of a flat. The tenant paid a deposit but the landlord never paid this into a TDS. At the end of the tenancy, the tenant vacated the flat and the landlord made deductions from the deposit before repaying the balance to the tenant. The tenant disputed the amount of deductions made and sought an order for the landlord to pay the financial penalty. It was held that the power of the court to impose a financial penalty on a landlord was no longer exerciseable once the tenancy has come to an end and a tenant cannot make an application for such an order once the tenancy has ended.

The court considered the recent case of Tiensia v Vision Enterprises Ltd [2010] EWCA Civ 1224, in which the landlord failed to protect the tenant’s deposit and provide the prescribed information within the relevant time frame. In that case, the Court of Appeal allowed the landlord until the date of the hearing to comply and in doing so established a “cut-off point” for compliance. If the landlord complies with its obligations to protect the tenant deposit by before the hearing date, no financial penalty can be imposed but the landlord may be liable for the tenant’s costs. The difficulty with this case is that it does not assist in situations where the tenancy has already come to an end. as there had never been compliance with the TDS rules and as the tenancy had ended, the TDS rules do not allow the deposit to be protected once the tenancy has expired. In the Gladehurst case, there was no longer any ability for the landlord to comply with the initial requirements as the tenancy had come to an end and this meant that the grounds for the tenant to make an application no longer existed. As such, the court was unable to exercise its discretion as it could neither require repayment of the deposit nor require it to be paid into a TDS and could not exercise its power to impose a financial penalty.

The decision is important for tenants who must now ensure that any claim for a financial penalty to be imposed on a landlord must be made before the tenancy comes to an end.  Otherwise the tenant will lose its remedy.  In no way should this decision encourage any landlord to delay or seek to avoid complying with the statutory requirements as they will then run the risk of their tenant making a successful claim to impose a statutory penalty at any time during the term of the tenancy.

 

For more information or advice on dealing with tenancy deposits, please contact either Vanessa Joll or Kristine Ng by emailing Vanessa or Kristine by calling them on 08450 990045.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.

15 August 2011