Monday 22 March 2010

Landlords and agents urged to know the law to avoid costly litigation

One of the West Midlands’ leading property lawyers is urging landlords and agents to understand their legal responsibilities better to remain on the right side of the law and to avoid costly litigation.

Nyree Applegarth, a property litigation specialist at Higgs & Sons, says that a recent High Court decision on tenancy deposit schemes is providing some much needed clarification on the obligations of landlords.

“Since 6 April 2007, it has been a legal requirement that any deposit paid be placed in one of three Government approved Tenancy Deposit Schemes,” says Nyree. “This is the case for all shorthold tenancies except if the rent exceeds £25,000 per annum.

“All competent letting agents should know the procedure inside out, as too should landlords who are managing properties without help from an agent. However, the legislation presents a plethora of potential traps for someone less well versed in the vagaries of the Housing Act 2004.”

There have been many cases involving the interpretation of the Act but the recent decision in Draycott v Hannells Lettings Ltd provides a sound indication of how the Court will deal with tenancy deposit issues.

Nyree said: “The dispute in the Draycott case arose because the letting agents had taken a deposit from a tenant, but failed to lodge it with one of the approved schemes, within 14 days of receipt. The deposit was registered with the Deposit Protection Scheme but not for some two and a half months after it was paid.

“The tenant therefore issued proceedings claiming that the letting agents were in breach of the requirement to lodge the deposit within 14 days and sought compensation equal to three times the amount of the deposit. The agents sought to defend the claim on the basis that any proceedings had to be brought against the landlord, not the agents, and that the claim had no merit, since by the time the proceedings had been issued, the deposit had been properly protected.”

In the first case the judge dismissed both arguments and ordered that compensation be paid to the tenant. However in an appeal at the High Court, it was decided that the judge had been too harsh on the agents.

Nyree said: “Landlords and agents needs to act fast, as where deposits are not registered until after proceedings had been started, there is nothing in this decision to prevent another judge from wielding the full force of the legislation as occurred in the Da Costa v Pinter case in April 2009.

“Here the tenancy agreement provided for a monthly rent of £1,950 but also stated 'Payment required in advance of £4,200'. The agents’ invoice described £2,250 of this sum as a deposit, and at the end of the tenancy the tenants asked for it back. As it was not forthcoming they issued county court proceedings for its return and also claimed the fine of three times the deposit sum. The deposit was then protected, after the issue of proceedings. The Judge accepted that the sum paid was a deposit and awarded the claimants the deposit money and the fine of £6,750.”

There have been suggestions, following on from the Harvey v Bamforth case, that a landlord is 'safe' so long as he protects the deposit before any court hearing. This is still likely to hold true, but in line with decision in the Draycott case, the Court is also willing to look at the requirements of each scheme, before concluding that the sanctions of section 214 of the Act automatically apply.

Nyree concludes: “All three of these cases tell landlords and agents one thing – whatever the outcome of court cases, it’s better to stay on the right side of the law to avoid costly litigation in what is a complex area of law.”

Higgs & Sons is headquartered at prestigious new offices in Brierley Hill’s Waterfront where 170 of its 180-strong team are based. The firm has recently been nominated for Best Law Firm (16 partners and over) in the Birmingham Law Society Awards.

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