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Can the tenant claim the deposit penalty if the deposit was not actually paid?

This post is more than 12 years old

April 8, 2014 by Tessa Shepperson

Getting adviceHere is a question to the blog clinic from Hans who is a landlord:

Our tenant of 6 years 6 months August 2007 to Feb 2014 has only ever agreed to renew the AST once during this period and that was as they needed a new agreement to obtain housing benefits.

The first AST in 2007 did not have a deposit requirement and we did not receive one.

Over the next three years we have had to deal with late payments of rent, arrears which got paid and then built up again. In 2012 when the tenant required a new AST to obtain housing benefits they promised to pay the £900 arrears within the year.

Even though we had had rent problems with them we accepted their offer and issued a new AST which included the provision of a deposit of £900, being one months rent.

The tenants signed and the rent payments improved and things settled down for the next 18 months. However the tenants then refused to renew the AST again. Rent arrears started to increase again. We decided it was time for them to go and issued a s21, followed by a s8 on the grounds of arrears of more than 12 weeks in Nov 2013.

At this point they had actually been in arrears for the £900 from Jan 2012. The tenants agree to move out 1st Feb. In Nov we realised we had not put the required deposit in scheme and following advice from our family solicitors place the £900. on deposit with MyDeposits and issued the paperwork to the tenants.

Over the following months and many letters relating to the arrears, of now £3600 we eventually got our property back, unfit for re-let with considerable damage.  We did get payment of the arrears over three months.

We then get a solicitors letter informing us that the tenants are intending court action for the return of the deposit and compensation of up to three time that amount as we where late putting the deposit on deposit.

However, when we check the tenants payment history we find no record of the tenants paying any deposit to us against the 2012 AST.

We have asked them to provide proof of a deposit paid. I have an email say they can not provide this. Can they still claim against us for the late deposit by us when they have not paid a deposit. Their solicitor said they can. Any advise please.

We are planning a counter claim for all the damaged which exceeds their claim. The tenants also declined the MyDeposit ADR stating they are seeking compensation through the courts. Where do we stand?

I have to say that when reading your question I wondered whether the tenants had actually paid the deposit but then you said you had placed it in a scheme on your solicitors advice – so I assumed (until I got to the end of your question) that they must have.

This is going to be your problem.  You have protected the money and served the prescribed information.  Why would you do this if the money was never received?

So if you are now going to claim that the deposit money was never received, this is a bit of a hurdle you are going to have to overcome.

I assume that the only reason you did this was because of your solicitors advice. So you need to take a look at the advice you got and see what they said and why.

Did you tell them that you had never had the deposit money?  (Or is it something they should have spotted?)  Did they tell you to go ahead and protect anyway – if so, I think this was bad advice and you may have a claim against them.

Or did they think that you had received the money and  give the advice on that basis?  In which case it may be your fault for not providing them with the proper information.

So far as the proposed litigation is concerned – here are a few comments:

They may be calling your bluff

It is easy to threaten to bring a claim.  Actually doing it is something else.

The tenants will have to finance the court fees and their solicitors fees.  You know from your experience in getting rent from them, that they are bad payers.

Few solicitors firms are prepared to act on tenancy deposit penalty claims on a no win no fee basis, and if they are not acting on a no win no fee basis they will want a substantial payment on account before they do anything.

So it is possible that the claim will never happen.  You can’t count on this though.

Make a without prejudice offer

If you make a reasonable offer to settle the case, this makes it considerably less likely that a claim will ever be issued.

For example you could offer to withdraw your claim for damage on the basis that they withdraw their claim for the penalty.  Point out that your claim for compensation is higher than the compensation claim plus they cannot actually prove that the deposit money was ever paid.

You could also say that if they ignore your offer and proceed with the claim and lose, that they will have been wasting court time and you will be asking for an order for costs against the solicitors personally.  If they are acting under a no win no fee agreement this will deter them.

This sort of letter however would be better coming from another firm of solicitors.

See if your solicitors will act for you without charge

If your former solicitors did not advise you properly, they may be prepared to act for you without charge to sort things out – particularly if you say you are considering a claim for negligence / compensation against them.

If they had not advised you to protect the deposit you would be in a much stronger position now.

See if your insurers can help

If you are able to claim for the damage against your insurers, they may be prepared to assist you with a claim against your former tenants.  If your former solicitors won’t help you, this may be worth a try.  Or your insurance policy may cover you for legal costs anyway.  Check it out.

I hope these comments are of some help to you.  What does anyone else think?

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Filed Under: Clinic Tagged With: Deposit Money, Penalty, Tenancy Deposit

Notes:

Please check the date of the post - remember, if it is an old post, the law may have changed since it was written.

You should always get independent legal advice before taking any action.

Reader Interactions

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Comments

  1. Colin Lunt says

    April 8, 2014 at 8:41 am

    Very comprehensive answer. This issue again underlines the importance of accurate records in business relationships. Even if the actual records are in various forms eg text, t/call email/skype, a landlord and tenant should maintain a dated log or diary of all events.

  2. David Smith says

    April 8, 2014 at 9:16 am

    No I don’t think they can make a claim. The case of Johnson v Olds is instructive here. In that case the tenant sought to make a claim based on a clause in a tenancy agreement that did not accord with the true situation. The same is true here. There is a clause stating that the deposit will be paid but it has not been. Therefore the obligations don’t exist. I would suggest you get some legal advice to respind properly to the person claiming for the tenants. They may not in fact be a solicitor and they are almost certainly acting on a basis whereby they don’t get paid unless they recover something. A well worded letter now may be enough to kill this off for good.

    • Hans says

      April 8, 2014 at 7:17 pm

      David, thank you for your comments on my case. It maybe that I anticipated some of the reply as I have looked into the person, “solicitor” acting on behalf of the tenant and they are a paralegal and they are mostly dealing with personal injury cases on a no win no fee basis. This looks like a new venture for them.

      However my first response to their threat of legal action was in fact to request proof of deposit payment on either the 2007 AST which didn’t have a deposit clause or against the 2012 AST which included the requirement for a deposit payment. I also said we reserved the right to claim for the considerable damage to the property and included the checkout report.

      To my surprise they phoned me, left a message on my answer machine wishing to have a discussion. I returned the call, if this was the right thing to do or not we will see. Inline with Tessa view that a counter claim for the damages would cancel each other out as an offer was also their approach.

      In their view they would win a court action for the late logging but not at three time the rent and they would have to advise their client that they would certainly have to meet the costs of the damages as clearly shown in the checkout report with pictures.

      I also consider the point that their client would not have the money to bring such a case. So if we were prepared to agree to this they would advise their client to drop their action. I said we would consider this as my wife just wants an end to it. We had a short conversation on the damages and that their client had disagreed on some points, unfortunately we didn’t have a check in report to validate this but we do have the previous tenants checkout report from independent agent which has no mention of the disputed damage. Plus we have all previous photographic information to support both reports.

      I received a second call and message from the “solicitor” requesting a copy of the previous check out report in his words, “to dot the I and cross the t”. Along with other documents that their client had omitted to send or mention. Other documents sent, full payment history from 2007 to 2014 which clearly shows late and non payments throughout their tenancy.

      Declined offers we made to them to just leave with requiring them to only pay only half of the £4600 rent arrears. We were a little perplex when the tenant paid all of the arrears in instalments and then 11 days after the final payment amount, 4 weeks after leaving the property, they later start to request the paid deposit back. The first we knew was an email from MyDeposit advising us of a dispute and that the tenant had rejected the ADR process.

      I understand from a lot of legal reading that we were in error for not checking if a deposit had been paid sooner, I may have misunderstood our solicitor as I thought we had to have put money on deposit or we couldn’t issue the section 21.

      So to shorten a long rant, we have now advised their “solicitors” that we are seeking further legal advise and issued a letter before court action on the dilapidation and damages to the tenant by way of calling their bluff.

      Finally, we have full legal insurance to defend this case and already prepared a full chronology of events many documents over the last 6.5 years for our solicitor. Will keep you all posted.

  3. Industry Observer says

    April 8, 2014 at 4:16 pm

    I must be missing a trick here and would always bow to David and Tessa’s superior knowledge even allowing for their younger age, but I find the tenancy agreement clauses and Johnson v Old a red herring.

    Am I right in thinking the position here is that originally there was no deposit paid (no matter who thought, said or intended what)? If so there can be no offence so far.

    In 2012 if a deposit was paid by the tenants in connection with the renewal and you did not protect it within 14 days (if paid pre Localism Act 2011) or 30 days if after then you committed an offence.

    If that 2012 tenancy has gone statutory periodic and you did not re-protect the deposit then I’d say you have committed two offences depending when you protected it. But if you did not re-issue PI on the periodic instance you cmmited the second offence anyway.

    So you could have zero, or one or two offences!!!

    Then because of previous problems on a reneweal you insist on a deposit

  4. Alex Britchfield says

    April 8, 2014 at 6:06 pm

    I agree with David. TDP legislation requires a deposit to be protected within 30 days of it being paid. In the event that it wasn’t paid there is no obligation to comply with the legislation. The fact that you inadvertently protected an amount of money that wasn’t received is unfortunate, and arguably complicates the matter somewhat. However, provided you can demonstrate that no such deposit was ACTUALLY received then I would be extremely surprised if any claim against you was successful.

    • Hans says

      April 9, 2014 at 6:46 am

      Hi Alex, yes we have very detailed payment records supported by bank BACs records of payments from our tenant each is identified by what the payment is for “Rent”. We have a detailed spread sheet, a copy of which we provided to the tenant as continued record/reminder that they were always in arrears since Jan 2012. The formant for this was advised by our lawyers in preparation of the section 8, it was during this preparation that we discovered no deposit had been paid. I accept it was a major error putting the money on deposit before checking if we had received a deposit. I have a letter from the tenant confirming that they did not pay a deposit in 2012 with the renewal of the tenancy agreement or have any form of a receipt for a deposit paid. This some 4 months before they decided to threaten legal action for non compliance with the deposit. The tenant had been on a PTA since refusing to sign a new agreement in August 2008 till 2012. Any further comments most welcomed. Thank you for your comment and view to date.

  5. Industry Observer says

    April 9, 2014 at 9:03 am

    If no deposit was ever paid by the tenant then there is no case for anyone to answer.

    Trickiest and really anorak interesting scenario now is that Mydeposits if they have as little common sense as Schemes sometimes show in various scenarios might treat you as a Relevant Person paying the deposit on the tenant’s behalf!!!!

    If the ex tenant takes proper legal advice they’ll run a mile from this

  6. Paul White says

    April 9, 2014 at 11:41 am

    In my dealings with My Deposits they advise that a deposit should be protected in full even if it is only part paid. In other words, if a deposit is, say £500, but the tenant can only pay half now and half later, the full £500 should be protected on receipt of the forst instalment rather than amend the deposit details later.

  7. Industry Observer says

    April 9, 2014 at 1:42 pm

    Paul

    This just cannot be right, unless you can post the link in the website that says it is, or the name of the senior person at Mydeposits that told you this.

    My guess is this is an answer given in all good faith by a junior staff member as it simply cannot be correct (though convenient to Landlord and Mydeposits!!) on several counts.

    First how can you protect what does not exist?

    Second the Statute rwuires the deposit, as defined in the Statute, to be protected. Not the intended deposit, the cash actually handed over.

    Third the lead tenant information sheet that Mydeposits requires issuing to the lead tenant – what amount will that show for the deposit

    Finally if not careful if the tenants never pay the additional instalments but have anything in writing to state the deposit is the original intended amount I can imagine all sorts of fun and games.

    I can tell you the complete opposite applies with TDS haven’t researched TDS as I only believe in DPS as only one scheme is needed which should hold all the money, but don’t get me onto that one!!

    Take a tip from 40+ years commercial experience and 7 years TDP experience – only ever believe something that could have consequences if confirmed by a relatively senior staff member and also in writing. With all due respect the Scheme Rules for TDS and Mydeposits are so unnecessarily complicated and usually written not in the best interests of their own members that very few junior staff understand them

  8. Industry Observer says

    April 9, 2014 at 1:45 pm

    Apols

    Above should of course say complete oppiste applies with DPS as that is the only scheme needed.

    By the way what is entered in the tenancy agreement as deposit amount? Can’t be the intended deposit, so if it is what is paid at commencement what do you do when that changes if another payment is made?

  9. Hans says

    April 9, 2014 at 4:37 pm

    Now here is a question, As my tenant opened a dispute case with my deposit and stated that they would not use the ADR resolution process I have now had to pay over to MyDeposits the full deposit amount even though I said I had not received any deposit from the tenant. The process now is I have to wait till either MyDeposit are given instructions by the court or six months before the money will be returned. Is this my tenant being vexation and just tying up my money!!! would there be any interest due on the money? I understand now why some landlords don’t take deposits and have a rent upfront and renew every six months. Anyone had dealings with MyDeposit when a tenant rejects the ADR. I am told that any case brought by anyone rejecting any form of ADR are not viewed well by the courts and can been seen as wasting the courts time.

  10. Industry Observer says

    April 10, 2014 at 11:54 am

    Dear me this just gets worse.

    Why on earth you paid any money into Mydeposits when there was no deposit in the first place paid by the tenants defeats me. There was no case to answer nothing for Mydeposits to adjudicate on.

    Similarly there is nothing for the Court to adjudicate on either – how can the tenant sue you for the return of any part of the deposit when they never paid one in the first place.

    You need a good solicitor to deal with this immediately Court papers are received if they ever are. I fail to see how the tenant is ever going to submit Court papers as even with Legal Aid no sensible lawyer would ever take their case on as there is no case.

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