It is reported in the news today that estate and letting agents Purple Bricks have failed to protect numerous tenants deposits paid to them and also failed to serve the prescribed information relating to those deposits on tenants.
What are the legal consequences of this?
Consequences for landlords
Sadly landlords will be held liable for this even though the mistake was down to Purple Bricks and even though they knew nothing about it.
This is under the general rule in agency law that principals (in this case landlords) are liable to third parties (in this case tenants) in respect of actions (or as in this case, failures to act) carried out by their agents on their behalf.
In most situations, the agent is not liable at all but there is a special exception to the general rule for deposit related claims which allows tenants to claim against the agent too.
The penalties for failure to protect a deposit and serve prescribed information are:
- An inability to serve a valid section 21 notice until the deposit money has been refunded to the tenants, and
- Liability for a financial penalty of
- Up to 3x the deposit sum, and
- A claim for the return of the deposit money,
- so long as the tenants bring a County Court claim for this.
See this post for guidance on refunds and financial award quantum.
Although you will only be liable if a Court Order is made in your tenant’s favour, the Judge will have no discretion to order less than 1x the deposit. You are best advised therefore to try to reach an agreement with your tenants rather than allow the claim to go to a hearing, by which time the costs (which you will be ordered to pay) could be quite expensive.
If Purple Bricks have failed to protect a deposit for one or more of YOUR tenancies, you should contact them and ask them what they propose to do about reimbursing you for claims, and/or making payment direct to your tenants.
Consequences for tenants
Tenants will be able to claim from the landlord and also from Purple Bricks as the landlord’s agent, by way of an application to the County Court for:
- The return of the deposit sum, and
- A penalty payment of up to 3 times the deposit paid
Please see this post which has details from a case that clarified the law regarding refunds of the deposit money and financial awards.
Note however that the claim for the return of the deposit may be subject to a claim by the landlord for damage and maybe rent arrears – assuming your landlord is in a position to prove this.
Payment of the penalty will only be due if an order is made by the County Court. In this context, note that when making your application you will need to use the more complicated ‘alternative procedure’ under the Civil Procedure Rules Part 8. Shelter has a helpful guidance page on this here.
Although if your landlord is evicting you, a claim can also be made as a defence and counterclaim to your landlord’s eviction proceedings.
If your landlord and/or Purple Bricks refuse to engage, be aware that the Part 8 procedure can be quite expensive in court fees and legal aid is not available – unless maybe you are making a claim by way of defence and counterclaim to eviction proceedings.
You are strongly advised therefore to take legal advice before taking any action – one of the organisations set out on this page may be able to help.
Consequences for Purple Bricks
Purple Bricks will be jointly liable with landlords, for this claim where they were acting as the landlord’s agent.
If landlords are forced to make payment to tenants, they will be entitled to claim this back from Purple Bricks, for example by way of third party proceedings.
This is a substantial potential liability for Purple Bricks and I hope for their sake that they have suitable insurance cover.