Tenancy Deposit Claims: A Cautionary Tale

In a recent case involving a tenant’s claim for compensation for failure to protect a deposit of over £10,000, the tenant was awarded a total of £34,800 plus costs of £22,000.

The Claimant entered into a tenancy with the Defendant for a luxury property in Hertfordshire. Contrary to the obligations contained in Section 213 Housing Act 2004, the landlord failed to protect the deposit until 320 days after it was taken.  

The Claimant issued proceedings under Section 214(4) of the Housing Act 2004 and was awarded 2.5 times the deposit (the maximum being 3 times the deposit). The Judge held that as a professional landlord, the Defendant was well aware of the deposit protection obligations and had given no explanation for the almost year-long delay in protecting the deposit. The Defendant sought to argue that it was having financial difficulties, but this only served to be an aggravating factor, resulting in the Court making an order towards the top of its discretion under Section 214(4).

The Claimant had beaten its Part 36 offer and was eventually awarded £34,800 plus costs of £22,000. A “Part 36 offer” is an offer made under Part 36 of the Civil Procedure Rules. If a tenant makes an offer to accept, for example, compensation of £10,000 in full and final settlement of the Claim and Counterclaim, the landlord fails to accept it and the tenant then goes on to beat that offer at Trial, the tenant can then bring the offer to the attention of the Judge when the case has concluded (and not before). The Civil Procedure Rules provide that the landlord is liable to pay the tenant’s costs from the date the offer expired, together with interest on those costs.

This case serves as a stark reminder to landlords that they must comply with their obligations to a) protect a deposit in one of the 3 government-authorised schemes, and b) serve the “prescribed information” on the tenant (and anyone who paid the deposit on the tenant’s behalf) in full within 30 days of the deposit having been paid. Failure to do so will not only prevent the landlord from being able to serve a Section 21 Notice, but may also result in a substantial claim for compensation from the tenant.  

Where there has been a failure to protect the deposit within 30 days of the initial fixed term tenancy and a further failure to protect within 30 days of a further fixed term being granted, or a statutory periodic tenancy arising, the tenant’s compensation claim can be even larger, as compensation can be awarded for each separate breach.  

Does a lodger deposit need to be protected?

Deposits only need to be protected in one of the 3 authorised schemes where they are paid “in connection with an (assured) shorthold tenancy” (Housing Act 2004, s213(1)). Deposits paid by lodgers do not need to be protected.

If you are a landlord or a tenant and are considering or facing a deposit protection claim, or you just need some general advice on your situation, please contact our Liam Kreibich on 01332 225207 or at liam.kreibich@smithpartnership.co.uk.