New Clause 12

Localism Bill – in a Public Bill Committee at 1:15 pm on 10th March 2011.

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Brought up, and read the First time.

Photo of Stephen Gilbert Stephen Gilbert Liberal Democrat, St Austell and Newquay

I beg to move, That the clause be read a Second time.

I shall not detain the Committee for long. New clause 12 would simply improve existing tenancy deposit schemes so that legislation works better for tenants and landlords. It would clarify the circumstances in which landlords must protect deposits, and give judges greater discretion over the size of the penalty for landlords’ non-compliance to ensure that it is proportionate.

As the Committee probably knows, Government-backed tenancy deposit protection schemes were introduced in April 2007. The legislation was designed to set out clear responsibilities and time scales for landlords to protect tenants’ deposits, and to provide a quick, efficient way of resolving deposit disputes. Such schemes benefit more than 2 million households in the private rented sector. Those 2 million households’ deposits have been protected, and that includes my own, so I probably need to declare an interest.

Ambiguities in the existing legislation have meant that it is failing some private tenants because they do not have their hard-earned deposits protected. It is also failing landlords, who struggle to find accurate information, and the process is wasting the time of the courts and the advice services. In the past year, for example, citizens advice bureaux dealt with almost 15,000 inquiries relating to tenancy deposit protection. Almost 4,000 people went to the housing charity Shelter for advice relating to their rent deposit, three in four of whom did not have their deposits protected. Despite the best efforts of the previous Government to introduce much-needed protection in this area, the system is not quite working as the House intended. Each of the individual schemes that provide tenancy deposit protection, as well as national landlord and property organisations, has given strong support to improving the schemes and, indeed, to new clause 12. The broad support for such change is a clear sign of the need for reform to ensure that legislation works better.

The first provisions of new clause 12 are designed to clarify the circumstances in which landlords must protect deposits. It removes the “initial requirements” wording in the original legislation and instead requires landlords to protect their tenants’ deposits by complying with the requirements of one of the authorised schemes. The original wording implied compliance with the initial requirements of the individual schemes, but the courts have found that particularly difficult to enforce and landlords have been unclear about which requirements they were supposed to follow. The amended wording  would make the requirements much clearer, so landlords would have a much stronger idea of their responsibilities and the courts would find it easier to make judgments.

The new clause clarifies specific grey areas in existing legislation. First, ex-tenants, as well as current tenants, would have access to recourse if their landlord failed to protect their deposit. Secondly, if a tenancy that began before the introduction of tenancy deposit protection schemes was subsequently renewed, the landlord would be required to protect the deposit. Finally, if a property changed hands, the new landlord would also be under an obligation to protect the deposit.

The second aspect of new clause 12 would give judges greater discretion over the penalty for a landlord’s non-compliance. The new wording would remove the all-or-nothing sanction of three times the deposit, and it would enable judges to make a discretionary judgment as to whether the landlord should pay a penalty of between one and three times the amount. As hon. Members are aware, judges have been reluctant to impose the full penalty of three times the deposit, particularly when the landlord had protected the deposit but outside the strict 14-day limit. A Court of Appeal judgment of 11 November 2010 concluded that the sanction of three times the deposit does not apply if the landlord belatedly protects the deposit at any time up to and including

“the eve of the trial of a claim for the penalty damages”.

The existing provision is not only not proportionate in law, but not working in practice.

By giving judges discretion on the level of sanction that they can apply, new clause 12 would ensure that they would be better able to take into account the range of factors that contributed to a landlord’s non-compliance on protecting a tenant’s deposit. That would enable them to impose lower penalties on landlords who were evidently ignorant of their responsibilities, and higher penalties on landlords who wilfully failed to protect their tenants’ deposits. I believe that the change would lead to more proportionate sanctions for landlords, while offering a clear incentive for them to comply with the will of the House. I have no intention of pressing the new clause to a Division, but I shall be grateful if the Minister will respond to some of these issues.

Photo of Andrew Stunell Andrew Stunell The Parliamentary Under-Secretary for Communities and Local Government 1:30 pm, 10th March 2011

I thank my hon. Friend for tabling the new clause. It addresses a relevant and topical issue, and I am sympathetic to its main thrust, which is to clarify the issues raised in the recent court hearings to which he referred.

Like the dissenting judge in such cases, we think it right that sanctions for non-compliance with tenancy deposit obligations should be robust and a disincentive to bad practice. The ambiguity in the present wording should certainly be put right, and I congratulate my hon. Friend, and my absent hon. Friend the Member for Bradford East, on their attempt to do that.

Unfortunately, new clause 12 goes beyond that basic aim because it would make changes that do not flow from the Court of Appeal decision. Sadly, it also misses one of the issues that did arise in the Court of Appeal, and I will deal with that omission first. The key finding  of the Court of Appeal concerned the application of a financial penalty for non-compliance with the requirements of tenancy deposit protection legislation in a situation when the tenancy is still in place and the landlord has protected the deposit after the deadline of 14 days. While the new clause tackles that issue, one of the reasons behind the Court’s view concerned the ability of a landlord to use section 21 of the Housing Act 1988 to evict a tenant when they were found to be in breach of tenancy deposit protection legislation. Under the legislation as it stands, a landlord who fails to comply with the deposit protection legislation cannot use section 21 to evict a tenant. That is important, because section 21 is one of the key characteristics of assured shorthold tenancies to which the tenancy deposit scheme relates. It allows a landlord to evict a tenant, having given reasonable notice, on a non-discretionary basis and without having to give a reason. The ability to gain possession of their property is key to a landlord’s confidence in letting out that property in the first place, and in the current economic climate, we would not want to undermine that confidence.

As the Court of Appeal pointed out, under the tenancy deposit protection legislation as currently drafted, it could be argued that once a landlord has failed to protect a deposit, they would be unable to use section 21 in connection with that tenancy, even when they had subsequently protected the deposit and, where appropriate, paid the fine imposed by the court. That outcome is not the intention of the legislation, and we are therefore clear that any amendments aimed at tightening up the requirement to protect tenants within 14 days must also address that point.

The Government’s view is that to address fully the concerns underlying the Court of Appeal’s decision, it is important to allow the courts greater discretion than currently available when setting the financial penalty. My hon. Friend the Member for St Austell and Newquay relayed the current regime to the Committee. However, subsection (11) of the new clause does not offer sufficient flexibility, because as well as allowing flexibility up to a maximum tariff, it still leaves the minimum of one times the deposit. We think that there should be no lower limit. If the objective of such legislation is to encourage landlords to comply and to protect the deposits they take, it cannot be right to levy a substantial penalty when a well-intentioned landlord had made a mistake that, for instance, could result in the deadline for protection being missed by only one day. It is essential that the courts have the discretion to do justice in those de minimis cases, but that would not be possible if the minimum sanction were to be the payment of a penalty equal to the full amount of the deposit.

As I mentioned, the new clause also contains measures that, although they seek to clarify legislation, go beyond issues considered by the Court of Appeal. Proposed new subsection (8A) of the Housing Act 2004, which the new clause would insert, is particular example of that. I understand the wish to clarify what happens when a landlord acquires a property with an existing tenancy in place, and it turns out that the associated deposit has not been protected, but my hon. Friend’s proposal would place all the responsibility and cost for rectifying that on the incoming landlord, regardless of the facts and regardless of who was responsible. That cannot be right in cases when, for whatever reason, the  outgoing landlord has not assigned the deposit to the new landlord. The matter needs further consideration, and I am not even convinced that legislation is the answer. Proposed new subsection (8B) is less problematic, and I have great sympathy with the wish to clarify the situation. However, there does not seem to be convincing evidence of a widespread or intractable problem.

I am grateful to my hon. Friends the Members for St Austell and Newquay and for Bradford East for tabling the new clause, which has drawn attention to the Court of Appeal’s decision. I welcome the fact that it will not be pressed to a Division, and I assure them that I shall reflect further on how the matter might best be addressed in the future.

Photo of Stephen Gilbert Stephen Gilbert Liberal Democrat, St Austell and Newquay

I am grateful to my hon. Friend. Rarely am I told that I am going too far and not far enough at the same time, but before I exhaust the Committee’s patience and the Government Whip sends me to Shanghai, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.