You may recall that in the Spring edition of Rural Landscape we commented on the case of Tiensia v Vision Enterprise Ltd. In that case it was decided that a landlord had until the court hearing date to comply with their statutory requirements under Section 213 of the Housing Act 2004, to place a tenant's deposit in an authorised scheme. Such action avoided the penalty being awarded against the landlord.

The recent judgement in Gladehurst Properties Limited v Varid Hashemi (2011) now gives further clarity on circumstances where a tenant cannot claim the penalty deposit - and it is more good news for the landlord. Section 214(3) and Section 214(4) of the Housing Act 2004 were controversial when they came into force in April 2007: the penalties for non-compliance with the legislation are that:

  • the landlord cannot get a possession order; and
  • the tenant has the opportunity to claim three times the amount of the deposit.  

The Gladehurst case answered the question of whether a tenant could claim the penalty after the tenancy had ended with a resounding "no". In this case the tenants had paid a deposit to the landlords, but the landlords never paid the deposit into a scheme. On vacating the flat the landlords returned the deposit to the tenant but the landlords deducted some money against minor repairs. The tenant issued proceedings claiming three times the deposit by way of the penalty. The District Judge struck out the claim on the basis that the tenancy had ended therefore the provision no longer applied. On referral, the Circuit Judge gave the tenants leave to appeal, subsequently awarding the penalty to the tenants. This prompted the landlords to take their case to the Court of Appeal.

The decision of the court of appeal followed that of the District Judge. Giving judgement, Lord Justice Patten came to a conclusion that the power of the court to make an order under Section 214(3) and (4) was not exercisable once the tenancy had ended.

He noted that no criminal penalty was imposed for non compliance with the provision by the landlord; it was then up to the tenant if he chose to take advantage of provisions created for his benefit. The deposit is a matter to be dealt with at the inception of the tenancy, not after the expiry of the term. A landlord could not be expected to pay a deposit into a scheme if no tenancy subsists, and a scheme would not accept the deposit in such circumstances.

For the provisions to be of any use to a tenant, the tenant must enforce them before the tenancy ends. In that case a landlord would avoid be able to the penalty by paying the deposit into a scheme before the court hearing date. Therefore it would seem that a landlord has ample opportunity to avoid a penalty payment.