New Clause 12

Part of Localism Bill – in a Public Bill Committee at 1:30 pm on 10th March 2011.

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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.