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MARCUS JENSON, residing at 9/9 Hopetoun Crescent, Edinburgh, EH7 4AU against GUISEPPE FAPPIANO, residing at 21 Forth Street, Edinburgh, EH1 3LE


Submitted: 28 January 2015

                                 SHERIFFDOM OF LOTHIAN AND BORDERS, AT EDINBURGH.

2015SCEDIN6

Judgment of Sheriff T Welsh QC

Under the Tenancy Deposit Schemes (Scotland)

Regulations 2011

                                                  

 

MARCUS JENSON residing at 9/9 Hopetoun Crescent, Edinburgh, EH7 4AU

                                                                                                                                                            Applicant

                                                                   against

 

GIUSEPPE FAPPIANO residing at 21 Forth Street, Edinburgh, EH1 3LE

                                                                                                                                                            Respondent

 

                                                              Act: Turner, Thorley Stephenson SSC, Edinburgh.

                                                              Alt: Blacklock, Blacklocks, Edinburgh.

 

B646/14

28 January 2015

The Issue.

[1] The applicant was the tenant of the respondent, in a flat at 9/9 Hopetoun Crescent Edinburgh, between 1st July 2013 and 27th June 2014, when an unopposed warrant to evict him was granted at Edinburgh Sheriff Court, with expenses. The warrant was extracted on 14th July 2014 and diligence instructed. I am told the applicant vacated the property, voluntarily, on the eve of the date fixed by Sheriffs Officers, in August 2014, to remove him by force. This was not a happy tenancy. As part of the Tenancy Agreement the applicant paid a deposit of £1000 to the respondent. That money was not, as it should have been, under the Tenancy Deposit Schemes (Scotland) Regulations 2011, lodged in an approved scheme for safekeeping.  Nor did the landlord comply with his duties under the regulations to supply certain prescribed information to the tenant 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. This was all contrary to regulations 3 and 42. This failure by the landlord has triggered Regulation 9 which entitles the tenant to make an application to the sheriff for an award of an amount of money as a sanction against the landlord for his failure to comply with his duty. Put shortly, I am asked to decide in terms of regulation 10 how much, if at all, the landlord must pay the tenant, by way of sanction, for his noncompliance.

The Undisputed Facts. 

[2] The applicant is an Italian national living in Scotland. He works as a cook. When money was cheap he bought a flat at 9/9 Hopetoun Crescent, Edinburgh, EH7 4AU, with the help of a mortgage. After the financial crash of 2008 it got harder to pay the mortgage. By early 2013 he decided to move in with his father and rent out the property, which would make paying the mortgage easier from a combination of the rental he received, augmented by part of his salary. That way he hoped he could keep the flat and sit out the financial crisis. He has never let property before. He has no specialist knowledge of property letting in a commercial market. Undaunted by his lack of knowledge and expertise, he downloaded a specimen pro-forma short assured tenancy agreement from the internet, advertised for a tenant on Gumtree and waited. The respondent replied. No references were sought or supplied. The rental agreement was signed. The rent was £920 per month. A deposit of £1000 was paid by the tenant.  The term of the let was agreed to run from 1st July 2013 to 31st January 2014. The respondent did not comply with his regulatory obligations to lodge the £1000 deposit in an approved scheme for safekeeping, nor did he supply the prescribed information to the tenant within the timescale set down.

The Disputed Facts.

[3] Happily, I do not need to resolve the disputed facts given the admission on record that the landlord is in breach. However, the parties soon found themselves in dispute over rent arrears; damage to the property; missing items; liability for parking fines and a parking permit which apparently ran with the rental.

The Removal.

[4] The landlord wanted rid of the tenant. Lawyers were engaged but the first attempt to evict failed at the end of 2013 and the let relocated tacitly. The tenant was not so lucky the second time. Decree for recovery of possession of the property was granted by the sheriff on 27th June 2014. However, within the second term of the let, the financial dispute between the parties worsened.

The Partial Remedy of the Initial Noncompliance.

[5] By 27th January 2014 the £1000 deposit was paid into an approved scheme by the respondent and in terms of the scheme. It later became the subject of an independent adjudication after the tenant had vacated the premises.  The adjudicator found in favour of the tenant and the deposit was returned to the applicant, in full, in December 2014.

The Regulatory Scheme.

[6] Section 121(1) of the Housing (Scotland) Act 2006 authorises the creation of a regulatory framework governing tenancy deposits. Ministers are empowered to lay down regulations which may in terms of s121(2) of the Act:

 

“(a) make provision about the manner and circumstances in which tenancy deposits must be paid, held and repaid under an approved scheme,

(b) impose sanctions for failing to participate in, or to comply with, an approved scheme,

(c) set out a mechanism for resolving disputes relating to an approved scheme,

(d) prescribe the type of person who may administer an approved scheme,

(e) authorise the Scottish Ministers to make payments, or to give guarantees or other assistance, in connection with—

(i) the creation, administration or operation of an approved scheme,

(ii) the resolution of disputes relating to an approved scheme,

(f) set the amount, or the maximum amount, of any fee which may be charged in connection with an approved scheme,

(g) prescribe arrangements for publicising approved schemes.”

 

Accordingly, the Tenancy Deposit Schemes (Scotland) Regulations 2011 came into effect on 6th March 2011. Landlords, from then on, were obliged to conduct their business in relation to rent deposits in accordance with the regulations. The respondent, in terms of Regulation 3, was bound, under pain of sanction:

“within 30 working days of the beginning of the tenancy—(to)

(a) pay the deposit to the scheme administrator of an approved scheme; and

(b) provide the tenant with the information required under regulation 42.”

The prescribed information in regulation 42 relates to the operation of the scheme and status of the landlord as a registered landlord and consists of:

 

“(a) confirmation of the amount of the tenancy deposit paid by the tenant and the date on which it was received by the landlord;

(b) the date on which the tenancy deposit was paid to the scheme administrator;

(c) the address of the property to which the tenancy deposit relates;

(d) a statement that the landlord is, or has applied to be, entered on the register maintained by the local authority under section 82 (registers) of the 2004 Act;

(e) the name and contact details of the scheme administrator of the tenancy deposit scheme to which the tenancy deposit was paid; and

(f) the circumstances in which all or part of the tenancy deposit may be retained at the end of the tenancy, with reference to the terms of the tenancy agreement.”

 

 

[7] The mischief which these regulations are designed to curb is the Rachmanite practice, on the part of certain unscrupulous landlords, of retaining the tenancy deposit in the knowledge that some tenants may choose to walk away from a tenancy deposit dispute, at the end of a tenancy and lose the money they are entitled to, rather than go to court to try to recover their deposit in, what might be, a lengthy court case over a relatively small sum. In place of widespread variation in practice, uncertainty and unfairness in the market, a system of uniform honest brokerage has been introduced which includes a Government backed independent safe deposit scheme; approved depositories; clarity about the status of landlords as registered with the local authority; speedy, free, independent extra judicial dispute resolution with review in contested cases, and judicial sanction for noncompliance; in short,  effective statutory control, sanction and regulation.

 

 

The Submissions.

 

[8] On 17th December 2014 this case called for proof. No evidence was led. Both parties submitted that the pleadings supplemented by oral submission form a sufficient basis for a decision to be made by me. I agree.  Under reference to Fraser v Meehan 2013 S.L.T. (Sh Ct) 119; 2013 Hous. L.R. 78 and Tenzin v Russell 2014 Hous. L.R. 17 Miss Turner moved me to sanction the landlord for his admitted noncompliance with regulation 3. She informed me that in terms of regulation 10(a) of the scheme I had an unfettered discretion to impose a monetary sanction up to three times the amount of the deposit. The monetary sanction was not related to any loss or prejudice suffered by the tenant. There was no guidance as to where to draw the line or how much of the lash to administer to an errant landlord. It was a civil fine imposed as punishment. Miss Turner moved for an award of three times the deposit. The discretion was entirely mine. Miss Turner did concede that there were rent arrears on the let but disputed the amount suggested by Mr Blacklock below.

 

[9] On the other hand Mr Blacklock was somewhat outraged by what had happened. His client was not a commercial landlord. He was a 30 years old amateur first time landlord who had made a hash of the let. His client admitted immediately he did not comply with his regulatory duty and remedied that fault as soon as he became aware that it existed, at least in so far as putting the deposit into an approved scheme was concerned. The deposit had recently been adjudicated under the scheme and would be returned to the tenant in full. Further, he referred me to a series of letters he had lodged in process, between agents for the parties from 7th January 2014 to 3rd June 2014, which demonstrated, he said, that the tenant was using the threat of sanction against the landlord as a weapon in the financial dispute between the parties over rent arrears and other matters. The suggestion from the correspondence being that this application for judicial sanction would not be insisted on if the landlord waived his claim to certain disputed rent arrears. Mr Blacklock informed me the respondent’s answers to the application state that he considers he is being ‘blackmailed’ by the applicant in this case. This was against the background of a toxic dispute between the parties over disputed rent arrears, disputed damage to the property, disputed missing items and disputed liability for parking fines in connection with a parking permit which may or may not run with the property. He argued the regulatory scheme was designed to protect tenants from rogue landlords. I was told the respondent still works as a cook. He earns about £1200 per month. He and his father pay the mortgage of £1600 per month on the flat, between them. There are, it was said £9200 arrears of rent, owed by the applicant. What has happened in this case is akin to an abuse of process. He conceded I had no option but to make an award given the language of the regulation but invited me to award £1 as a token gesture, in the exercise of my discretion.

 

Discussion.

 

[10] Regulation 10 provides as follows:

“If satisfied that the landlord did not comply with any duty in regulation 3 the sheriff—

(a) must order the landlord to pay the tenant an amount not exceeding three times the amount of the tenancy deposit; and

(b) may, as the sheriff considers appropriate in the circumstances of the application, order the landlord to—

(i) pay the tenancy deposit to an approved scheme; or

(ii) provide the tenant with the information required under regulation 42.”

 

[11] Non-compliance is admitted in this case, therefore the regulation is engaged. I consider regulation 10(a) to be permissive in the sense of setting an upper limit and not mandatory in the sense of fixing a tariff. The regulation does not mean the award of an automatic triplication of the deposit, as a sanction. A system of automatic triplication would negate meaningful judicial assessment and control of the sanction.  I accept that discretion is implied by the language used in regulation 10(a) but I do not accept the sheriff’s discretion is ‘unfettered’. In my judgment what is implied, is a judicial discretion and that is always constrained by a number of settled equitable principles.

 

  1. Judicial discretion is not exercised at random, in an arbitrary, automatic or capricious manner. It is a rational act and the reasons supporting it must be sound and articulated in the particular judgment.
  2. The result produced must not be disproportionate in the sense that trivial noncompliance cannot result in maximum sanction. There must be a judicial assay of the nature of the noncompliance in the circumstances of the case and a value attached thereto which sounds in sanction.
  3. A decision based on judicial discretion must be fair and just (‘The Discretion of the Judge’, Lord Justice Bingham, 5 Denning L.J. 27 1990).

 

[12] Judicial discretion is informed and balanced by taking account of these factors within the particular circumstances of the case. The extent to which deterrence is an active factor in setting the sanction will vary (cf Tenzin v Russell 2014 Hous. L.R. 17). The judicial act, in my view, is not to implement Government policy but to impose a fair, proportionate and just sanction in the circumstances of the case.

 

Disposal.

 

[13] In this case I accept the respondent is an ‘amateur’ landlord in the sense that he is not a seasoned or professional landlord. This was his first letting experience. Neither is he a serial non complier with the regulations which would attract higher sanction. His noncompliance was partially remedied when he received legal advice about his obligations which is an important factor to take into account when balancing the equities of the case. He attended at court for the hearing and appeared, to me, to be thoroughly chastened by the whole process and experience.

[14] Ignorance of the regulations is, however, no excuse. Noncompliant landlords can expect no mercy from the courts if they conduct their business in flagrant disregard to statutory controls. In my analysis the let lasted just over a year. The tenant had a right to be informed of the prescribed information within 30 days of commencement. He also had a right to have his deposit paid into the scheme within the same period. Instead, he was uninformed by the landlord for the duration of the let and his deposit unprotected by the scheme, for approximately one half of the letting period.

[15] I agree with Miss Turner that the quantification of sanction is not measured by loss or prejudice suffered by the tenant, nor, may I say, should it be measured only by the length of the Lord Chancellor’s foot i.e. subjectively. There must be an objective basis and rationale to the sanction.

[16] In this case the deposit was at risk for half the let, protected for the other half and finally returned, in full, to the tenant. Although uninformed by the landlord, the tenant, who did not attend the hearing, became informed and was able to use the information in relation to sanction as a bargaining chip in his wider dispute with the landlord over rent. He was also able to access the free adjudication scheme and recover his deposit in full. I do not agree that this case amounts to blackmail of the landlord. Parliament has given tenants the right to apply for sanction to the court, as part of a regulatory initiative against oppressive market practices towards them, by some but by no means all landlords. There are unscrupulous landlords but there may also be unscrupulous tenants. 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. Landlords will require to comply fully with the regulations to avoid the risk of Parthian shots from former tenants, even those who have recovered their deposits but remain aggrieved by regulatory noncompliance on the part of the landlord.

[17] Nor do I consider the wider financial dispute between these parties relevant to sanction. They each have adequate remedies for any damages they can prove arising from breach of contract.

[18] Turning then to sanction, I do not consider this case to be one, such as repeated and flagrant non participation in, or non-compliance with the regulations, by a large professional commercial letting undertaking, which would warrant severe sanction at the top end of the scale. Nor is it one where the noncompliance amounts to nonparticipation in the scheme resulting in frustration of the scheme and inconvenience if not downright prejudice of the tenant. I am of the view this case properly belongs at the lower end of the sanctioning scale. The respondent is now back living in the property. This was his first commercial let. Future deterrence is a factor but I am inclined to think he has learned his lesson that if he is going to let out property for money he has to know and comply with the regulations. The deposit was ultimately returned to the tenant through the arbitration service. If, so called ‘amateur landlords’, decide to enter the market place they should be warned the regulations do not recognise that status and they are not exempt compliance from them through inexperience or naiveté.  The respondent’s noncompliance deprived the tenant of important information he ought to have had from the landlord whose responsibility it was to deliver it. It deprived him of the assurance that the landlord was above board and his deposit was safe. The regulations were introduced precisely to achieve these purposes.  The tenant’s deposit was unprotected and exposed to potential risk for about one half of the period of let.  To mark the quality of noncompliance and its consequences in this case, I consider it would be fair, proportionate and just to sanction the respondent for noncompliance by awarding the applicant a sum equivalent to one third of the deposit (£333.33), as taxed, plus his expenses.

 

 

 

Sheriff T Welsh QC,

Edinburgh Sheriff Court.

28th January 2015.