Sheriff court case in which 3 students from the University of Edinburgh, who held a short assured tenancy over a flat on Drummond Street in Edinburgh, sought sanction from their landlady after the landlady failed to pay a tenancy deposit (of £1,550) into an approved tenancy deposit scheme in terms of the Tenancy Deposit Schemes (Scotland) Regulations 2011.

The landlady paid the deposit into an approved scheme 240 days late and only after the students raised the action against her. She also failed to provide the tenants with information (relating to the deposit and landlord registration) in terms of regulations 3 and 42 of the regulations. The tenants sought the maximum sum available of £4,650 (3 times value of the deposit.)

There was a fourth tenant who was not party to the action. Because of this, the landlady argued that the sanction granted should be reduced by 25% on the basis that the fourth tenant could make an additional application for sanction. However, the sheriff rejected that argument as he found that it was not open to the court to sanction the landlady twice. Serial sanctions against landlords by a number of co-tenants are not competent. Instead the fourth tenant had a right of relief which he could exercise against his co-tenants to receive a share of the sanction.

The sheriff took  the following into account when assessing the level of the sanction:

• for 270 days of a 334 day lease the deposit was unprotected (as a result, the sheriff multiplied the deposit by 270/334 to give a figure of £1,253);
• the landlady had admitted her breach of the regulations (and not wasted the courts time disputing it);
• the deposit was ultimately returned to the tenants in full and without dispute (meaning that, although the tenants had been deprived of their rights to protection, they had not actually been prejudiced); and
• the landlady had been specifically informed of her obligations under the regulations (twice) by the City of Edinburgh Council and so had to be taken to have known of her obligations (although the sheriff found that she had been slow in complying rather than wilfully defiant).

Taking into account the latter 3 points, the sheriff granted a further sum of £600 and awarded a total sanction of £1853.

The full judgement is available from Scottish Courts here.

 All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Background
Sheriff court case concerning a short assured tenancy of a flat in Edinburgh in relation to which a deposit of £550 was paid to the landlord but not paid into an approved tenancy deposit scheme as required under the Tenancy Deposit Schemes (Scotland) Regulations 2011. The tenant applied to the sheriff for an award of an amount of money as a sanction for the landlord’s failure to comply with his obligation under the regulations.

Arguments
The landlord argued that:

1. the tenancy was not protected by the 2011 regulations because the property was not ‘the principal home’ of the tenant during the duration of the lease (as the tenant had worked 3 and half days a week in Skye for a period of 6 months); and
2. even if the tenancy was protected by the regulations, a new tenancy was created in June 2014 in respect of which no deposit was made (meaning any action under the original lease would have been time barred at the time of the court action);  and
3. if the application was not time barred, the sanction provision was unenforceable, by the tenant, due to his dishonesty and illegality.

Decision
The sheriff rejected all of these arguments.

In the first place, the question of the tenant’s principal home did not have any bearing on the case. (The landlord had referred to the definition of an assured tenancy contained in s12 of the Housing Scotland Act 1988 which requires that the property is the tenant’s only or principal home. However, this was a short assured tenancy not an assured tenancy)

In the second place, although the tenancy agreement commenced on 15 June 2013 for a period of 12 months until 14 June 2014, it continued, with the consent of parties, until it terminated on 17 July 2015. Whilst the landlord had argued that a new lease was created in June 2014, the sheriff held that the tenancy was continued after 14 June 2014 on the principle of tacit relocation[1]. In coming to this conclusion, the sheriff noted that, after 14 June, the parties to the contract were the same, the property was the same and the only change was that the landlord had abated the rent by £50 because of a problem with the water supply. As such, the sheriff had no reason to think there was anything other than an extension to the original lease. (Meaning the action had been raised in sufficient time (i.e. within 3 months of 17 July 2015) in terms of reg. 9(1) of the 2011 Regulations).

Finally, the principle of illegality referred to by the landlord had no application to this case. (Although the sheriff also found that the landlord’s allegations in this regard were unsubstantiated). The sheriff stated that, although in some cases of partial breach of the regulations where the deposit was ultimately paid into to the scheme, the conduct of the tenant could be relevant to the sanction, where the deposit is never lodged, he failed to see how the tenant’s character could ever mitigate the breach.

As such, a sanction of twice the value of the deposit[2] was awarded[3].

It is also of note that, with regard to arguments by the Landlord to the effect that he had not understood the regulations and was only an ‘amateur landlord’, the sheriff said the following:

 “the regulations do not recognise the status of ‘amateur landlord’.  Landlords who rent to the public are covered by the regulations whether they are large commercial concerns or single property, buy to let landlords.”

 The full judgement is available from Scottish Courts here.

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[1] Where the term of a lease comes to an end and the tenancy then renews itself on the same terms and conditions.

[2] The maximum award is three times the value of the deposit.

[3] Less £50 for minor damage which had occurred to the property.

Sheriff Court case relating to a short assured tenancy of a flat on Laurence Street in Broughty Ferry. Ms Cordiner was the tenant and Mr Al-Shaibany, the landlord. In terms of the lease, the rent for the first and last months was payable in advance. The lease also provided that no deposit was required by the tenant. In terms of the Tenancy Deposit Scheme (Scotland) Regulations 2011, if a landlord fails to pay a tenancy deposit into an approved scheme within 30 days of the beginning of the lease, it may be liable to pay a penalty to the tenant for failing to comply with its duties.

The question for the court was whether payment of the last month’s rent fell within the definition of a “tenancy deposit” (provided in the Housing (Scotland) Act at s120).

The definition provides that:

“A tenancy deposit is a sum of money held as security for

(a) the performance of any of the occupant’s obligations arising under or in connection with a tenancy or an occupancy arrangement, or

(b) the discharge of any of the occupant’s liabilities which so arise.”

The sheriff found that the payments made by Ms Cordiner under the lease has been payments of rent and not payments held as security for the performance of any of the tenant’s obligations. In coming to that conclusion found the reasoning of the English Court of Appeal in Johnson v Old[1] to be persuasive. In particular, the sheriff noted that in that case:

“the Court made the crucial distinction between a payment discharging an obligation or liability and a payment made as security for that obligation or liability. A payment as security does not discharge the obligation or liability. Rather, it is an assurance that the obligation or liability will be discharged at a future time. The court concluded that a payment of rent in advance is a payment which discharges the obligation to pay rent and is not therefore a payment held in security for the discharge of any such obligation in the future”.

As regards the present case the sheriff stated:

“[Ms Cordiner] paid the first and last rental payment at the start of the lease. At that time she discharged her obligation to pay the first and last month’s rent in accordance with the lease. It seems to me to be wrong to describe that money as money held as security for the performance of an obligation, if that obligation has already been discharged. There was no evidence to suggest the rental payments were being held for any other purpose.

 As the payment of the last month’s rent was not “held as security” for the performance of the obligations under the lease, the payment was not a tenancy deposit in terms of the 2006 Act and did not require to be paid into an approved scheme in terms of the 2011 Regulations.

 The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] [2013] EWCA 415; [2013] HLR 26.

Background
Sheriff Court case concerning a lease of property at Hopetoun Crescent in Edinburgh. The landlord initially failed to pay a deposit (of £1000) into an approved scheme and also failed to provide the tenant with the prescribed information[1] required in terms of Tenancy Deposit Schemes (Scotland) Regulations 2011.

The lease was to run from 1 July 2013 to 31 January 2014 but, despite an unsuccessful attempt to evict the tenant at the end of 2013, continued by tacit relocation until decree for recovery of possession of the property was granted on 27 June 2014. The deposit was paid into an approved scheme on 27 January 2014 (when the landlord became aware of his duties).

Where a landlord has failed to comply with its requirements under the 2011 regulations, regulation 9 provides that the tenant can apply to the sheriff for an award of an amount of money as a sanction against the landlord for its failure to comply with its duties. The question for the sheriff in this case was how much the landlord should have to pay.

Arguments
The tenant argued that he should receive (the maximum award of) three times the deposit contending that the sheriff’s discretion as to the amount of the award was unfettered[2].

The landlord’s solicitor argued that the landlord was not a commercial landlord and was a 30 year old first time amateur landlord who “had made a hash of the let”. He had also paid the deposit into an approved scheme as soon as he had become aware of the requirement and (following a dispute) the deposit had been adjudicated on under the scheme and repaid to the tenant. The landlord also contended that the tenant had been using the threat of sanction under the regulations as a weapon in a dispute over rent arrears (with the suggestion being that judicial sanction regarding the deposit would not be pursued if the landlord were to waive his claim for rent arrears.) In essence the landlord considered that he was being blackmailed by the tenant.

Decision
The sheriff accepted that he had discretion as to the amount of the award but did not agree that the discretion was ‘unfettered’ as it had to be exercised for sound reasons and could not be exercised in a manner which was arbitrary, automatic or capricious. Further, the resulting decision had to be fair and just and could not be disproportionate (in that trivial noncompliance could not result in the maximum penalty).

The sheriff noted that a landlord’s ignorance of the regulations could be no excuse. He also found that there had been no blackmail in this case.

“In my view, the bona fide use, by tenants, of this right as supplementary leverage against landlords, is not illegal and if it becomes widespread, it should further enhance good market practice and regulatory compliance. It is not a bar to sanction against the landlord.”

However, after taking account of the various mitigating factors in favour of the landlord, the sheriff took the view that the award in favour of the tenant should be at the lower end of the scale and awarded the tenant the sum of £333.33 (one third of the deposit).

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Relating to the safekeeping of the deposit, the status of the landlord as a registered landlord under the scheme and how any future disputes over the money could be resolved.

[2] See summaries of Fraser v Meehan, 2013 S.L.T. (Sh Ct) 119 and Tenzin v Russell, 28 January 2015 (and 19 December 2013 here) in which the sheriff’s discretion was described as ‘unfettered’.

Background
Inner House case relating to a landlords’ failure to comply with the Tenancy Deposit (Scotland) Regulations 2011 in respect of a property at 4/6 Admiralty Street in Edinburgh.

The landlords failed to pay a deposit of £750 into an approved tenancy deposit scheme as required by regulation 3 of the 2011 regulations and made deductions from the deposit before returning it to the tenant at the end of the lease. In terms of regulation 10, where the landlord fails to comply with its duty under regulation 3, (following an application by the tenant) the sheriff must order the landlord to make a payment not exceeding 3 times the deposit to the tenant. Following an application from the tenant, the sheriff ordered the landlord to pay the maximum monetary payment of three times the deposit.

The sheriff principal refused an appeal by the landlords on the basis of technical points relating to the tenants’ pleadings[1] and on the basis that the sheriff had made an error when exercising his discretion to award the maximum penalty (noting that the sheriff had “complete and unfettered discretion” as to the award to make).

Arguments
The landlords appealed to the Inner House which refused the appeal and found no flaws in the decisions of the sheriff and sheriff principal. With regard to the sheriff’s decision to award the maximum penalty, the landlords argued that the sheriff had failed to take into account the fact that the landlords were only in breach of the regulations for 34 days and had placed weight upon the fact that the landlords had held the deposit for several months prior to the tenancy deposit protection deadline. Further, the landlords argued that the sheriff should have taken account of the facts that, at the time of the breach, the regulations were new and complex, that the breach had occurred during the transitional period of the regulations coming into force, and that the breach had occurred during a period in which the tenant had given notice of his intention to vacate the property.

Decision
The Inner House emphasised the limited role which it (as an appellate court) could play in considering an exercise of the sheriff’s discretion noting that it could only interfere where, for example, the sheriff had not exercised his discretion at all, had taken into account irrelevant considerations, or had failed to take into account relevant ones. The sheriff had set out in detail his reasons for awarding the maximum penalty and the Inner house could find no fault with his reasoning:

 “It is plain that he reached the conclusion that the breach by the defenders in this case was indeed a serious one.  There is, in our opinion, no basis upon which we would be entitled to interfere with the decision he reached.  It is not insignificant that the defenders had until 30 November 2012 to register the pursuer’s deposit with one of the approved schemes.  That was over four months after the regulations had first come into force.  They chose not to do so.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] For which see LKS summary of earlier decision here.

Sheriff court case concerning the meaning of “a premium” in the context of residential leasing.

Mr Cross and others (the students) sought a lease of property at Elmfield Avenue in Aberdeen. They completed an application form supplied by Aberdeen Property Leasing which revealed that the rent was to be £1,300 per month, and that a deposit of £1,300 and an “Admin fee” of £125 plus VAT thereon were to be paid prior to entering into the lease. The students paid the deposit and administration fee. In June 2009 they entered into the lease and were granted an assured tenancy of the property.

The students subsequently raised a small claims action seeking repayment of the administration fee which they argued was an illegal premium.

At the time the lease was entered section 82(1) of the Rent (Scotland) Act 1984 provided:

“any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section”.

And s90 of the 1984 Act provided:

““premium” includes any fine or other sum and any other pecuniary consideration in addition to rent”

On 29 November 2012 s90[1] of the 1984 Act was amended by section 32(3) of the 2011 Act and now provides:

“”premium” means any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge.”

Aberdeen Property argued that the administration fee had been legitimately charged as, at the time the lease was entered into (i.e. prior to the amendments), administration fees were not prohibited.

The students argued that administration fees were prohibited at the time the lease was entered into and that the amendments made by section 32(3) of the 2011 Act simply clarified the meaning of “a premium”. They explained that the clarification was necessary because of confusion on the part of some landlords about what they could and could not charge and because of poor and inconsistent practices adopted by many landlords in relation to the imposition of charges and fees in addition to the rent and refundable deposit.

The sheriff agreed with the students’ interpretation and granted decree for repayment of the administration fee with interest:

“In my opinion the definition was not changed – it was improved to make it crystal clear to all involved in residential leasing that administration fees ought not to have been imposed and ought not to be imposed. The administration fee imposed by the defender is “a pecuniary consideration in addition to the rent” (s90 of the 1984 Act – prior to amendment). I asked [Aberdeen Property’s representative] if she could explain to me what the administration fee of £125 could possibly be if not “a pecuniary consideration in addition to the rent”. She has yet to answer that question. I have concluded that the administration fee imposed by [Aberdeen Property] was a prohibited payment and accordingly the pursuers are entitled to the return of it.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Background
Sheriff Court case relating to a landlords’ failure to comply with the Tenancy Deposit (Scotland) Regulations 2011 in respect of a property at 4/6 Admiralty Street in Edinburgh.

The landlords failed to pay a deposit of £750 into an approved tenancy deposit scheme as required by regulation 3 of the 2011 regulations and made deductions from the deposit before returning it to the tenant at the end of the lease. In terms of regulation 10, where the landlord fails to comply with its duty under regulation 3, (following an application by the tenant) the sheriff must order the landlord to make a payment not exceeding 3 times the deposit to the tenant. Following an application from the tenants, the sheriff ordered the landlords to pay the maximum monetary payment of three times the deposit.

Argument
The landlords appealed challenging the sheriff’s decision on, what were essentially, 3 grounds:

1. that the summary application made by the tenants, although made timeously[1], sought declarator (that the landlord had failed to comply with its duties) but not payment (of the deposit/penalty) and was consequently incompetent;
2. that the sheriff had made an error in allowing an amendment to be made to the summary application outwith the time limit; and
3. that the sheriff had made an error in the exercising of his discretion as to the amount of the penalty (arguing that the sheriff had given no explanation for exercising his discretion in the way he did).

Decision
Summary application
It was implicit in the landlords’ argument that the unamended application was incapable of providing the tenant with a statutory payment (in terms of regulation 10). However, the Sheriff Principal found that the grant of declarator to the effect that a landlord has failed in its duties under regulation 3 is the trigger for a payment under regulation 10. The landlords in this case had admitted their failure to pay the deposit into the statutory scheme which engaged a mandatory requirement on the sheriff to make an order for payment. Whilst it would have been prudent for the tenant to have separately sought an order for payment, the summary application as drafted was sufficient to trigger a payment under regulation 10.[2]

Discretion
There are no rules as to the approach the sheriff should take in assessing the order and the regulations do not contain matters or criteria which the court must consider. Therefore, in the view of the Sheriff Principal, the sheriff has “complete and unfettered discretion” as to the award to make and an appellate court has little, if any, justification for intervening. Whilst procedural fairness suggests a sheriff must have regard to any mitigation, in this case, no evidence had been led in mitigation and it was difficult to see what effect the mitigation might have had. The Sheriff Principal noted:

“As I have observed the sheriff is entitled to impose any penalty including the maximum to promote compliance with the regulations especially at this early stage in their operation and implementation. I regard this as important. It is clear that the appellants made deductions from the deposit at the end of the tenancy directly contrary to the letter and spirit of the regulations. As the sheriff states – “the very thing which it seems to me this legislation was designed to avoid or at least mitigate.””

 And earlier in the decision she had stated:

“In dealing with non-compliance no distinction has been drawn by the legislators between the careless or devious; the experienced or inexperienced, the culpable or inadvertent. Likewise the strict liability consequences of non-compliance allow the court to promote rigorous application of the regulations pour encourager les autres. In other words deterrence.”

The full judgement is available from Scottish Courts here.

(See appeal to Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Sheriff Court case in which the tenants under a short assured tenancy of property at Cumberland Street in Edinburgh sought to enforce the terms of the Tenancy Deposit Schemes (Scotland) Regulations 2011 against their landlord (an experienced property agent).

The landlord terminated the lease (on 12^th January 2013) and retained the tenants’ deposit of £1150. When the tenants contacted the landlord to recover the deposit (on 17^th February 2013), the landlord  claimed that he was entitled to retain the deposit due to damage caused to the premises by the tenants (but failed to produce any evidence). After lengthy correspondence between the parties the landlord repaid half the deposit to the tenants.

The 2011 Regulations obliged landlords to pay deposits to the scheme administrator of an approved tenancy deposit scheme by 24th November 2012 and also provides a free dispute resolution scheme in relation to the return of the deposits. If a landlord fails to comply with his obligations under the regulations, he is obliged to pay an amount not exceeding three times the amount of the deposit to the tenant.

The landlord admitted that it had failed to comply with his obligations under the regulations but argued that, following the correspondence, the parties had settled the matter and that, as the most the tenants would have been entitled to in terms of any arbitration under the statutory dispute resolution scheme was £1150, payment of three times the deposit was excessive.

The sheriff ordered that an amount of £3450 be paid to the tenants. The amount to be paid was not compensatory; it was a sanction or a penalty analogous to an award of punitive or exemplary damages[1]. In exercising the courts “unfettered discretion” when assessing the amount to be paid, the sheriff took account of the following:

“In this case the landlord was someone who may be presumed to have special knowledge of his obligations both in terms of the 2011 Regulations and the 2004 Act[2]. He failed to comply. It is averred that it was due to “oversight”. No further information was provided by [the landlord's solicitor]. In my opinion no proper explanation for his failure has been provided. He claimed retention of the pursuers’ deposit but failed to produce any evidence to support his claims. Had the dispute resolution procedure been available he would have been unable to seek retention of any part of the deposit without producing relevant evidence. The pursuers were placed in an invidious position and a compromise was reached on economic grounds. The fact that offers to settle this action have been made is in my opinion irrelevant to the issue to be determined.”