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Landlords told to check tenancy contracts after landmark court case

deposit protection

A judge has opened the door to higher compensation being paid by landlords if they fail to protect their tenants’ rental deposits within one of the official schemes.

The decision follows a judge’s remarks during a case between London landlord Pritpal Kohli and his two tenants Sandor Szorad and Eszter Kozma.

The tenants moved into their rented home in Hackney, East London (main picture) during late 2019 and paid a £1,326 deposit but moved out a year later. Their deposit was not returned and it transpired that Kohli had not protected the money.

Szorad and Kozma took Kohli to court for the return of their deposit and also to claim the standard compensation of three times the deposit (nearly £4,000) plus a second sum because Kohli had not protected the deposit a second time when their original tenancy rolled over to become a periodic tenancy - the pivotal part of the court case.

The judge agreed with the tenants, who could now receive some £10,000 including their original deposit.

The judge agree with the tenants.

This may sound technical but it’s important because landlords who forget or omit to protect their tenants’ deposit and who use rental contracts that roll over into periodic tenancies now face considerable compensation payments if their tenants decide to get legal.

Commenting on the decision, JMW Lawyers property law expert David Smith (pictured) says: “Where a tenancy has been renewed or rolled into a statutory periodic then the penalties for failure to properly deal with the deposit are payable for each renewal or periodic tenancy.

“[This decision is] not binding on all courts but will certainly be binding in London and is likely to be followed generally.

“The stakes [have now been] raised dramatically for landlords and agents who are not complying with the deposit legislation.”

Julie Ford of HF Assist, who specialises in helping landlords deal with such deposit claims by tenants, says landlords must ensure their rental contracts feature a ‘continuation clause’ to create a contractual periodic rather than risk a statutory ‘periodic tenancy’ arising and the risk of an additional claim being made, as was the case in this court case.

“Protecting deposits had been law since 2007 so in my opinion there is no excuse, and ignorance of the law is not an excuse in any situation and indeed a penalty should be due,” she says.

“But I do not agree that 3x deposit penalty should be gifted to tenants who have been at no financial loss, where their deposit has been returned in full at the end of the tenancy and/or the act of ‘non-protection’ did not put them at detriment.”

Read the judgement in full.

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