Penalties for not protecting a deposit

Background

1. If a landlord does not protect a residential tenant’s deposit, there are repercussions. The Housing Act 2004 (“HA 2004”) imposes sanctions for non-compliance with the initial requirements to protect a deposit such that the court must order the landlord to pay a penalty award to the tenant (HA 2004, s214 (4)).  The level of award is at the court’s discretion, from a minimum of the amount of the deposit figure to the maximum of three times the deposit figure.
2. So far, so simple, but what if there have been a succession of tenancies and the deposit has simply been retained from one to the next? Is failure to protect the deposit a single breach or (because the there is more than one tenancy) have multiple breaches occurred?  The answer is not clear cut and much of the case law that might be relied upon is unreported.
3. The starting point is the reasoning of the Court of Appeal in Superstrike Ltd v Rodrigues [2013] EWCA Civ 669. In Superstrike, a deposit had been paid before the deposit protection provisions set out above became law but a new statutory periodic tenancy began after the legislation came into force. The question was this: Had the landlord been paid a deposit when the new statutory tenancy began, meaning that the new legislation applied?  The Court of Appeal held that they had.  The new tenancy included a term allowing for the payment of a deposit equivalent to that in the original tenancy.  As a result, the tenant was to be treated as having paid that amount in respect of the new tenancy by setting it off against the return of the deposit paid for the original tenancy.
4. The situation in Superstrikeis now covered by amendments to the HA 2004.  Deposits are to be protected from a specified date and obligations to protect the deposit are met if they are complied with in an original tenancy and new tenancies arise.
5. That said, Superstrike remains good law and the fact that a statutory periodic tenancy is deemed a new tenancy with a new deposit is important in relation to the present question. If the logic is followed, where the deposit remains unprotected, there is a breach each time a new tenancy begins.  There is case law to support this view.
6. In Akrigg v Pigeon (unreported), 25 September 2015 (County Court at Chippenham and Trowbridge), two penalties were awarded of three times the deposit, one in relation to the original tenancy and one in relation to the statutory periodic tenancy that followed.
7. In Howard v Dalton (unreported), 7 May 2019 (County Court at Dartford), HHJ Simpkiss upheld a decision to award multiple penalties where the parties had entered into a total of eight consecutive tenancies. The original tenancy was granted in 2007 and the deposit was never protected. On appeal, the sum awarded was reduced dramatically from around £83,000 to £7,200 for various reasons including (amongst other things) limitation periods in relation to the early tenancies. However, the principle of multiple penalties for multiple breaches withstood the appeal.
8. All well and good for the tenant so far, but the landlord may (in contrast) wish to point to another county court judgment, Howard Davies v Scott (unreported), 18 January 2018 (Clerkenwell & Shoreditch),to seek to avoid paying multiple penalties.  The landlord in this case refused to return the claimant’s unprotected deposit at the end of their tenancy, alleging dilapidations. The original two-year tenancy had been followed by a statutory periodic tenancy for three months at the end of the original term.  A penalty of three times the deposit was awarded (for reasons relating to behaviour), but the judge declined to award a second penalty.  She accepted the principle that the statutory periodic tenancy was a new tenancy (as per Superstrike) but did not accept that a second penalty was payable.  She placed reliance on the fact that the legislation refers to “a penalty, a tenancy and a deposit” in the singular.
9. I have not considered the multiplier in this article.  Suffice to say the court has discretion in that regard and might only award one times or two times the deposit if the landlord’s behaviour, experience or reliance on a managing agent suggest it.
10. The question of the number of penalties due is likely to remain a grey area until there is a reported case. Landlords should, until then at least, beware.  Simply returning an unprotected deposit at the end of a tenancy does not protect one from a claim of this type.  There are firms of solicitors who specialise in such claims and will seek the full penalty of three times the deposit for each tenancy that is not time-barred.
11. Becket Chambers has a thriving and growing civil team who can assist with this and other landlord and tenant issues. Contact us for more information at clerks@becket-chambers.co.uk