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Tenancy deposits : Buyer beware

16 Feb 2017

In Baptiste v Barham (2015), a landlord was ordered to pay to the tenant one times the value of the deposit, which had not been protected within the statutory timeframe.

The landlord had purchased the property subject to the tenancy agreement in 2007. The tenant had paid a deposit when the tenancy was first granted in 2004 but the deposit was never protected. When the landlord bought the property, he renewed the tenancy, but also failed to protect the tenancy. A section 21 notice was served and possession proceedings issued, which the landlord then stopped when the tenant raised as a defence the fact that the deposit had not been protected in a government approved scheme as required by the Housing Act 2004.

The tenant pursued a claim for a financial penalty, and the Court accepted that the landlord had acquired the obligation to protect the deposit and therefore ‘inherited’ the liability for failure to protect the deposit when he purchased the property.

The case highlights how important it is that buyers acquiring residential properties subject to tenancy agreements check carefully whether the tenancy deposit rules have been followed. Otherwise they face liability for financial penalties. In ordering the landlord pay one times the value of the deposit to the tenant, the Court recognised that the landlord was not a professional landlord and had not had a flagrant disregard to the rules. However the Court does have the discretion to order up to three times the value of the deposit. Ultimately, whatever sum ordered by the Court, such a claim is going to be a costly and time consuming battle for a landlord. The case is a reminder of the caveat emptor rule - buyer beware. Buyers acquiring property subject to residential tenancies should always take specialist legal advice.

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