There has just been a decision handed down by the High Court concerning the tenancy deposit scheme. This is the first decision by a higher Court on this matter and is binding on all lower (County) Courts.

The case is Draycott v Hannells Letting Ltd. The facts of the case were undisputed and basically were that Hannells registered a deposit with The DPS (the custodial scheme) more than 14 days after receipt. The claim was brought against the agents.

The original decision taken by a Circuit Judge held that the claim for not protecting the deposit within 14 days could be brought against the agents. He further decided that the failure to protect the deposit within 14 days was in breach of the requirements of section 213 of the Act and was in itself enough to trigger the penalties of an award of three times the deposit as laid down in the Act. In his judgement the judge stated that suggesting otherwise would be akin to ‘driving a coach and horses’ through the intention of the Act and would be tantamount to allowing a landlord not to register a deposit until they were challenged about this in Court.

The High Court looked at two main issues.

1) Could an agent be held liable for a failure to protect a deposit or was it entirely the responsibility of the landlord.

2) Should the failure to register the deposit and provide the prescribed information within the14 days automatically trigger the penalties as laid out in section 214 of the Act.

The Court confirmed the original decision and decided that the agents, were liable to protect the deposit citing the wording of the Act that states that ‘references to a landlord or landlords in relation to any shorthold tenancy or tenancies include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies…’

On the second issue the Court decided that while a failure to protect a deposit with a scheme is certainly a breach of the Act it is not the same as the requirement to protect the deposit within 14 days.

The judgement looked at the rules of the particular scheme used by the agents in this case – that operated by the DPS. The distinction was made between the ‘initial requirements of the Scheme’ and other requirements. The Court decided that the DPS rules stated that there was an initial requirement only to make payment in to the Scheme and that the requirement to do so within 14 days was not an initial requirement of that Scheme. The Court decided that the penalties as laid down in the Act could only be imposed if the initial requirements of an authorised scheme have not been complied with.

So where does this leave things?

This is the first binding decision on the whole issue of Tenancy Deposit Protection and does seem to clarify some hitherto grey areas. In particular agents must be aware that it has now been made clear that it is they as well as landlords who bear a responsibility for protecting the deposit. It would also appear that agents must be clear what are the rules of the particular scheme that they use.

While there is the suggestion that landlords are left without fear of penalty it is still the case that no valid Section 21 Notice can be served while the deposit is not protected.

However leave has been granted to take this to appeal and it is still possible that this option will be taken and the decisions could yet be altered or overturned. In addition there are also other cases waiting to be heard that may also take different views.