It is common knowledge that a deposit taken in connection with an assured shorthold tenancy (‘AST’) must be protected with a Government approved scheme within the prescribed timescales, and that the full prescribed information has to be given to the tenant also within the prescribed timescales. Failure to do both, means that a landlord is unable to serve a valid Section 21 notice seeking possession of the property, until certain steps have been taken and even then, may still face a claim for financial penalties of up to three times the value of the deposit. 

Our Legal Update from August 2018 called “Tenancy Deposits - avoiding pitfalls and headaches” (see here)explains what information must be provided in relation to the deposit, what the potential issues are in default of compliance and what the penalties are for non-compliance. Our Legal Updates from November 2018 called “Court sends warning to landlords for protection of tenancy deposits” (see here) and June 2019 called “Restrictions on serving Section 21 Notices” (see here) are also of particular relevance here. 

Today we discuss a recent County Court decision in the case of Liaw v Sohal, which highlights the importance for Landlords to ensure that they have complied with the deposit rules, before embarking upon the Section 21 route for possession, and the potentially expensive litigation that could result, if the landlord is found to be in breach. 

Facts of the case 

Ms Liaw (“the Tenant”) was granted a 12 month fixed term AST of a central London flat by Ms Amrit Sohal  (“the Landlord”) beginning on 02 October 2013. A deposit of £2,100 was paid by the Tenant. 

The Tenant left the property on 01 October 2016. The Landlord did not return the deposit, nor did she take it to the deposit scheme arbitration. The Tenant brought a claim for a) return of the deposit, and b) a penalty of up to three times the value of the deposit for the Landlord’s failure to provide the prescribed information for both the original tenancy as well as two subsequent renewal tenancies, each of a 12 month term - so effectively, nine times the value of the deposit paid. 

The Landlord defended the claim, claiming that the prescribed information had been served within 30 days on the first tenancy, and that there were no renewal tenancies, only a statutory periodic tenancy (e.g. a rolling tenancy following expiry of the initial fixed term tenancy) as the Tenant had not signed those renewal agreements. She also counterclaimed for various losses, which are not relevant for the purposes of this Legal Update. 

The Landlord’s defence on sending the prescribed information did not succeed (a purported letter dated 25 October 2013 supposedly sent from the Landlord to the Tenant was not accepted as genuine) and it was held that the deposit was protected, but the prescribed information was not served in 2013, in breach of s.213 Housing Act 2004.

On the Landlord’s argument that the tenancy had simply continued as a statutory periodic after the initial term, there was clear evidence that the Landlord had sent renewal agreements to the Tenant, and that the Tenant had paid the advance rent according to those agreements. District Judge Wilkinson said :-

“It is clear from the exchange of correspondence that took place between the Landlord and Tenant, particularly regarding the second renewal, that even though no signature is on the renewal agreement itself, the term, rent and the six months’ clause break is clearly set out and agreed. This is particularly the case when the Tenant then immediately pays the rent that is due and owing”.

County Court decision

The Court found that there had been two renewal tenancies. On the Tenant’s claim for return of the deposit, and for the penalty claims for the three tenancies:

• On each occasion, a tenancy for a 12 month term had been entered into.

• On each occasion, the Landlord was under an obligation to serve the prescribed information, given that she had not done so on the first occasion and so the Deregulation Act 2015 amendments to the Housing Act 2004 did not apply.

• Therefore a penalty must be awarded for each tenancy.

• The Landlord was aware of her obligations, having let the property several times prior to the letting to this Tenant.

On that basis, District Judge Wilkinson awarded the Tenant the return of the deposit of £2,100 and, in light of his concerns as to the manner in which the alleged notice of 25 October 2013 has been presented to the Court, he further awarded two times the deposit for the three tenancies as a financial penalty. Therefore, the Tenant was awarded £12,600, plus £2,100, making a grand total of £14,700!

Final thoughts

We have seen that the 'multiple tenancy' argument in tenancy deposit disputes has been an issue before with conflicting views. The Judge took a completely different view to that in Liaw v Sohal in another County Court decision called Howard Davies v Scott, where the Judge refused to allow a second penalty for a second renewal tenancy.

Being County Court cases, the decisions in Liaw v Sohal and Howard Davis v Scott are not binding on other Courts and future cases may be decided differently. However, this decision will most certainly be referred to and likely to be persuasive in other similar cases. It is therefore a case of “watch this space” to see if a higher Court takes a different view. In the meantime, it serves as a stark reminder and warning to landlords and letting agents that the tenancy deposit rules must be strictly observed, in order to avoid the substantial financial penalties and costly litigation which may follow.

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole. 

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