Judge’s ‘odd’ decision to halt eviction over replacement deposit fee raises concerns

Experts say eviction judge is wrong but worry that decision will create informal legal precedent about Tenant Fees Act 'prohibited payments'.

tenant fees act eviction prohibited payments

A county court judge has adjourned an eviction hearing to check whether the money paid by the tenant to use a replacement deposit product is a ‘prohibited fee’.

This is believed to be the first time this has happened and, if the judge decides it is a prohibited payment, could throw the spanner into the replacement deposits sector.

The case has been highlighted by Will Eastman, Head of Legal Claims at Barbon Insurance Group, which trades under the HomeLet and LetAlliance brands, who says the unidentified judge’s ‘odd’ decision during a possession claim took his team by surprise.

It is reported that the judge, despite agreeing that the eviction should proceed on the agreed grounds, adjourned the case until it could be clarified whether the deposit replacement fee was ‘prohibited’.

Eastman says he believes the judge to be wrong, but worries that it could lead to other judges questioning evictions where a replacement deposit product has been used.

Nevertheless – the law is clear because a ‘prohibited payment’ claim would only be true if the agent or landlord had required the tenant to use this kind of deposit rather than a traditional one.

In this case the tenant was offered the choice between the two and chose a replacement deposit product, Eastman says.

“While I am confident all will work out for our customer, this case does raise the hypothetical question of whether other landlords will have similar challenges raised by a judge, tenant or their representatives and if they only have a section 21 notice to rely on, will they be successful solely on the government guidance?

“The answer is not a clear cut one, in my opinion, and whilst having a clause in the tenancy to acknowledge that the tenant was free to make the choice of a deposit replacement is helpful, it may not be enough to persuade a judge on the day.”

Established principle

Link to Tenant Deposits featureSam Reynolds (pictured), CEO of Zero Deposit disagrees: “As an established principle – this is not a prohibited fee. The judge’s initial opinion appears to be at odds with the government guidance that accompanies the Tenant Fees Act as well as considerable legal scrutiny on the matter.

“It’s highly unusual that this principle is being challenged – albeit I’m not aware which specific product this relates to.

“The crux of the decision the judge is seeking to make is whether a genuine choice has been presented to the tenant, which does introduce questions around process and regulation.

“There are protections in place with regulated products that mean tenants cannot be sold to; they can only be introduced to the product as part of a balanced choice, they have the benefit of a regulated sales journey and equally a 14-day cooling-off period.

“The additional protections within a regulated sales journey, plus the wording within the tenancy agreement referenced within this case, would make it very difficult to conclude that a choice did not exist.  “I suspect this is an ‘edge [or extreme] case’ but it does underline the importance of a regulated approach that provides choice and balance.”

Not binding

tim from peasTim Frome, Legal Associate Director at Hamilton Fraser (pictured) which runs the mydeposits tenancy deposit protection scheme and Ome deposit replacement scheme, says: “At this point, it will still be a county court decision so not binding on others but could be used as precedent if word gets around.

“If the decision at the next hearing gets appealed it’ll go up to the court of appeal where that decision would be binding on the other courts. It would take a while for that to happen but now this case is on our radar we’ll be keeping a close eye.”

What does the official guidance say?

The guidance for landlords and letting agents is unambiguous. Page 32 says a tenant can use a deposit replacement product without the Tenant Fees Act being contravened but warns: “You cannot require a tenant to use a deposit replacement product but may allow it as an option without contravening the fees ban.

“You should discuss with the tenant whether this would be the right option for them.”


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