Scottish Sheriff Court Decisions

SHERIFFDOM OF TAYSIDE CENTRAL AND FIFE AT DUNDEE

B687/15

2015SCDUND51

JUDGMENT OF SHERIFF LA DRUMMOND QC

in the cause

KESHIA CORDINER

Pursuer

against

GASSAN AL-SHAIBANY

Defender

Dundee, 9 June 2015

Act: Mr Fraser

Alt:  Mr Anderson

The sheriff, having resumed consideration of the cause, FINDS IN FACT:

1. The pursuer is Keshia Cordiner who resides in Dundee.  
2. The defender is Gassan Al-Shaibany, who resides in Carnoustie.
3. On 30 September 2013 the pursuer, Mr Bryan Logan and the defender entered into a short assured tenancy agreement in respect of Flat 5, 2 Lawrence Street, Broughty Ferry, Dundee which is owned by the defender.
4. Mr Bryan Logan has no interest in this dispute.
5. The lease was signed by the pursuer on 30 September 2013 and by the defender on 27 September 2013.
6. Under clause 1 of the lease, the duration of the lease was for one year commencing on 1 October 2013. Thereafter the tenancy could be renewed on a monthly basis, on 28 days written notice to quit by either party.
7. Under clause 3 of, and the schedule to, the lease, the monthly rent was £525 payable on the first of each month.
8. Under clause 4 of the lease, the rent for the first and last month of the lease was payable in advance.
9. The first payment of rent was due on 1 October 2013.
10. The pursuer paid £1,050 on 30 September 2013 as payment for the first and last month’s rent. 
11. Under clause 21 of the lease, if the monthly rent was not paid within 7 days of the date it fell due, the defender was entitled to give the pursuer 7 days’ notice terminating the lease and the pursuer was obliged to vacate the property.
12. Under clause 22 of the lease, if the pursuer contravened any of the conditions of the lease, the defender was entitled to give the pursuer 7 days’ notice terminating the lease and the pursuer was obliged to vacate the property.
13. Under clause 24 and the schedule of the lease, the pursuer was under no obligation to pay a deposit.
14. The pursuer’s mother signed a rent guarantee form on 27 September 2013. She guaranteed, for the period of the lease, the payment of all rent and other liabilities arising out of the tenancy agreement.
15. The tenancy came to an end on 11 August 2014.
16. The pursuer paid the monthly rent as set out in the schedule of rental payments in the defender’s second inventory of productions. The last rental payment made by the pursuer was for the month of June.   
17. At the conclusion of the tenancy, £195 of rent was owed by the pursuer to the defender.
18. The defender waived the need for the pursuer to provide written notice of the termination of the lease.
19.  In the course of the tenancy, bath panels were damaged. The defender had those repaired. The defender did not use the pursuer’s advance rental payment to pay for those repairs.       
20. The defender did not make any payment of a deposit to a scheme administrator under the Tenancy Deposit Schemes (Scotland) Regulations 2011.

FINDS IN LAW:-

1. This court has jurisdiction.
2. The defender is under no obligation to obtain a deposit from the pursuer.
3. The pursuer was under no obligation to pay a deposit to the pursuer under the lease signed by her.
4. The payment of the first and last month’s rent in advance was not a tenancy deposit under section 120 of the Housing (Scotland) Act 2006.
5. The defender did not receive a tenancy deposit within the meaning of section 120.
6. The defender has not failed to comply with any obligation under regulation 3 or regulation 42 of the Tenancy Deposit Schemes (Scotland) Regulations 2011.
7. The defender is entitled to decree of absolvitor.
8. Expenses are reserved.

Accordingly, grants decree of absolvitor in favour of the defender and reserves expenses meantime.

Sheriff L A Drummond QC

Note:

1. This is a summary application by the pursuer under the Tenancy Deposit Schemes (Scotland) Regulations 2011 (“the 2011 Regulations”). The pursuer seeks declarator that the defender has breached obligations under regulation 3 of the 2011 Regulations by failing to pay a tenancy deposit within 30 days of the beginning of the tenancy to the scheme administrator of an approved scheme. The pursuer also seeks declarator that the defender has failed to provide the pursuer with the information required under regulation 42.  On the assumption that the court is satisfied that the defender did not comply with those duties, the pursuer seeks an order requiring the defender to pay an amount of money to the pursuer under regulation 10(a) as a penalty for failing to comply with those duties. The defender denies that he received any tenancy deposit and avers that he has therefore not failed to fulfil any obligations under the 2011 Regulations.
2. I heard evidence on 25 March 2015. The pursuer was represented by Mr Fraser and the defender by Mr Anderson. The only evidence came from the parties themselves.
3. At the outset, Mr Fraser and Mr Anderson advised me that there was a great deal of agreement on the central issues in the case. As a matter of law, it was agreed that there was no obligation on a landlord to raise a deposit. Where a landlord obtained a deposit, he was required to comply with the 2011 Regulations. Many of the facts were agreed. Particularly, both parties informed me that there was agreement on how much rent had been paid by the pursuer to the defender and when she had paid it. However, at the end of the defender’s evidence it was clear that there was no such agreement. It seemed to me that this was a matter capable of being verified by vouching from documents such as bank statements. I continued the case to allow parties to produce vouching and for the parties to produce authorities in support of their legal submissions. By the time the case called on 5 May 2015, the defender had lodged a second inventory of productions with a schedule of rental payments made by the pursuer to the defender and bank statements vouching those payments. No vouching was provided by the pursuer. Both parties lodged lists and copies of authorities.  I heard legal submissions and made avizandum.
4. The evidence not in dispute can be summarised as follows. In October 2013, the pursuer was the tenant and the defender the landlord of Flat 5, 2 Lawrence Street, Broughty Ferry, Dundee, DD5 1ET. On 30 September 2013 the pursuer and her co-tenant Mr Bryan Logan entered into a short assured tenancy agreement in respect of the property owned by the defender at Flat 5, 2 Lawrence Street, Broughty Ferry, Dundee. The co-tenant has no interest in the dispute. The lease was signed by the defender on 27 September 2013. Under clause 1, the duration of the lease was for one year commencing on 1 October 2013. Thereafter the tenancy could be renewed on a monthly basis, requiring 28 days written notice to quit by either party. Under clause 3 of, and the schedule to, the lease, the monthly rent was £525 payable on the first of each month. The first payment of rent was due on 1 October 2013. Under clause 4 of the lease, the rent for the first and last month of the lease is payable in advance. The pursuer paid £1,050 on 30 September 2013 as payment for the first and last month’s rent.  Under clause 21 of the lease, if the monthly rent is not paid within 7 days of the date it falls due, the defender is entitled to give the pursuer 7 days’ notice terminating the lease and the pursuer is obliged to vacate the property. Under clause 22 of the lease, if the pursuer contravenes any of the conditions of the lease, the defender is entitled to give the pursuer 7 days’ notice terminating the lease and the pursuer is obliged to vacate the property. Under clause 24 of, and the schedule to, the lease, no deposit was required from the pursuer. By her signature on 27 September 2013 the pursuer acknowledged receipt of a notice from the defender under section 32 of the Housing (Scotland) Act 1988. The pursuer’s mother signed a rent guarantee form on 27 September 2013. She guaranteed, for the period of the lease, the payment of all rent and other liabilities arising out of the tenancy agreement. The tenancy came to an end on 11 August 2014.
5. Initially there appeared to be a dispute as to whether the pursuer had given written notice to quit in accordance with the lease. According to the pursuer, she informed the defender on 10 July 2014 of her intention to leave the property on 11 August 2014. The defender signed a slip confirming that the pursuer was a good tenant which the pursuer intended to pass to her new landlords. According to the pursuer, when the defender signed the slip he waived any need to give notice in writing. The pursuer had asked the defender if he would like a letter and he had replied that he would simply sign the slip. The issue was resolved when the defender accepted in his evidence that he had signed the slip and hadn’t insisted on written notice from the pursuer.
6. The facts in dispute centred on how much rent had been paid by the pursuer to the defender and for what purpose. The pursuer’s evidence was that, although there was no discussion with the defender about a deposit, she had paid the first and last rental payments totalling £1,050 at the start of the lease and she understood the last month’s rental payment to be a deposit. She had  made subsequent monthly payments of £525 to the defender with each payment leaving her account on the 27^th of each month. She made the last payment on 27 July 2014 which was for August’s rent. She had understood she would not need to pay the last month’s rent as she had paid it in advance. However, the standing order had come out of her account before she could stop it and she had paid for the whole of August.  The defender had asked her to pay rent for August and also for September. The pursuer was not aware of there being any damage to the property. The bath panels and shower had been broken and the defender had fixed those. There had been silver fish in the bathroom and she had asked the defender to approach environmental health. When she phoned environmental health she was told that the defender had refused to pay £70 for them to attend the property. 
7. The defender’s evidence was that he had been a landlord for 15 years and owns 16 properties. The pursuer had paid £1,050 in accordance with the lease as the first and last month’s rent in advance. The pursuer continued to make payments on the first of each month until June. Her last payment was received as rent for June. The defender did not make any payment in July as she had already paid for the last month at the start of the lease. The defender requested payment of the 11 days in August during which she remained in the property but the pursuer refused to make payment. The defender’s solicitor wrote to the guarantor asking for that money but had no response. The defender recognised that when the pursuer left the property it was in a very good state. The pursuer had reported bath panels to have been broken and the defender had instructed a plumber to repair these. He did not use any of the money paid as advance rent to pay for the damaged panels. The defender denied ever seeking any deposit from the pursuer. The lease had made it clear no deposit was payable.  The defender explained that the last month rent was required in advance because time and time again tenants had left his properties without paying the last month’s rent. He always insisted on a guarantor so that any damage to the flat could be paid for by the guarantor. In his experience, a tenant would be unable to pay both a deposit and two month’s rent at the start of a lease.

Submissions

1. Mr Fraser submitted that the primary question for the court was a matter of law:  whether or not the payment of the last month’s rent at the start of the lease falls within the definition of a “tenancy deposit” under section 120 of the Housing (Scotland) Act  2006 (“the 2006 Act”). Regulation 3 of the 2011 Regulations, provides that a landlord who has received a tenancy deposit in connection with a relevant tenancy must, within 30 working days of the beginning of the tenancy (a) pay the deposit to the scheme administrator of an approved scheme and (b) provide the tenant with the information required under regulation 42. There is no dispute that the tenancy in this case is a relevant tenancy for the purposes of regulation 3. The essential question is whether the last month’s rent paid in advance is a “tenancy deposit”. Regulation 1 defines “tenancy deposit” as having the meaning conferred by section 120 of the 2006 Act.  Mr Fraser invited me to conclude that the extra month’s rent payable in advance met the definition of a tenancy deposit under section 120. It was a sum of money held by the defender in advance of when it was due as security for the fulfilment of an obligation under the lease, namely the paying of rent.  It was in effect a deposit but one that was never paid to the scheme administrator as required under regulation 3. It was important to note that the lease provided in clause 1 that if not terminated after a year, the lease could continue from month to month until terminated by the tenant on 28 days’ notice. The lease could therefore continue for years with the landlord retaining the last month’s rent as security for the last month’s rent whenever that might fall due. Clause 21 and 22 allowed the defender to terminate the lease with 7 days’ notice. If the tenant left, there is nothing in the lease to say what would happen to the last month’s rent.  The defender is an experienced landlord who was deliberately trying to get round the regulations by requiring two month’s rent in advance. He ought to have known as an experienced landlord that the advance rent was a deposit and should have been paid to the administrator of an approved scheme. If I was satisfied that the last month payment of rent was a tenancy deposit, Mr Fraser invited me to order the defender to pay to the defender a sum of money under regulation 10(a). Under that regulation the court must make an order requiring the defender to pay up to three times the deposit. Under reference to Jenson v Fappiano 2015 SCEDIN 6, Mr Fraser invited me to impose a fair, proportionate and just sanction. He submitted I would be entitled to take into account that the landlord was experienced and professional and had deliberately avoided the regulations, as well as the amount the pursuer claimed to be owed by the defender in overpaid rent.  
2. On behalf of the defender, Mr Anderson began by pointing out that there is no obligation on a landlord to take a deposit under the 2011 regulations. The regulations only govern the deposit if it has been received by the landlord. The question in this case is whether the last month’s rent was a deposit: was it held as security for the performance of any of the tenant’s obligations? It is a matter of agreement that when the parties signed the lease, it was understood that the first and last month’s rent was payable upfront. That was what the parties’ contract provided and what the pursuer did. As a matter of contract the parties agreed that no deposit was to be paid. Clause 24 and the Schedule to the lease made it very clear no deposit was payable. The pursuer had stated in her evidence she had read and signed the lease. There was no ambiguity as to whether a deposit was required under the lease. It was inexplicable therefore that the pursuer thought that she was paying a deposit. When she paid the first and last payment of rent the pursuer then and there discharged her obligation to pay that rent. The money paid in rent could not be described as being held as security for the performance of a future obligation, when the obligation to pay the last month’s rent had already been fulfilled. Mr Anderson referred me to Johnston v Old [2013] EWCA 415; [2013] HLR 26, an English Court of Appeal case, which he relied upon as authority for the proposition that advance payments of rent are not payments made to secure compliance with any obligation, but are payments made to comply with the obligation to pay rent (paragraphs 34 to 36 per Sir John Chadwick). Mr Anderson also referred me to an article by the Residential Landlords Association which indicated that the question of whether advance rent payments fell within the definition of a tenancy deposit had long been awaiting clarification and that as far as the Landlords Association was concerned, the view of the Court of Appeal was consistent with advice they had previously given. Mr Anderson submitted that the uncertainty as the legal position, was a relevant factor which I should take into account when considering any penalty under regulation 10(a). The defender genuinely believed that he had not received any deposit and that there was no prohibition on him receiving rent upfront. There is a valid argument to be made by either side as to whether or not the advance payment constituted a tenancy deposit and that should be reflected in awarding a minimal amount by way of a penalty. In exercising my discretion, I would also be entitled to take into account how far the defender was out of pocket. The pursuer owed him 11 days rent as it was common ground the pursuer left the flat on 11 August 2014.

Decision 

1. There is little by way of factual dispute between the parties. The issue is a legal one which might well have been capable of being resolved at debate without any evidence being led. The parties agreed the lease commenced on 1 October 2013 and terminated on 11 August 2014. They agreed that the pursuer made advance payment of the first and last month’s rent. The defender accepted that he had not insisted on written notice as required under the lease. The only significant factual dispute was as to how much rent had been paid and when. In assessing this evidence it appeared to me that both the pursuer and the defender gave their evidence in a straightforward manner and were doing their best to tell the court the truth. However the pursuer seemed a little unclear about the payments made and provided no vouching for her evidence. Only the defender was able to provide vouching for the money which he said the pursuer had paid to him. I preferred the defender’s evidence of what was paid to him over the pursuer’s evidence. The defender’s productions entirely supported the payments he said he received and assured me that what he told the court previously was accurate.  I therefore find that the last payment of rent paid by the pursuer was for the month of June. As the pursuer paid the last month’s rent (July) in advance, it follows that the defender has been left out of pocket for the 11 days in August while the pursuer remained in the property.
2. Having decided that factual issue, I can turn to the central issue in the case which is whether the advance payment of rent is a tenancy deposit within the meaning of section 120 of the 2006 Act.
3.  Sections 120 and 121 provide:

“120. (1) 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.

121.  (1) The Scottish Ministers may by regulations (“tenancy deposit regulations”) –

(a) set out conditions which a tenancy deposit scheme must meet before they can approve it under s. 122,

(b) make such further provision about tenancy deposit schemes as they think fit.

                        (2)        Tenancy deposit regulations may, in particular –

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

                        (g) prescribing arrangements for publicising approved schemes.

 (3) But tenancy deposit regulations may not –

(a) prescribe circumstances in which tenancy deposits must be paid under a tenancy or  an occupancy agreement,

(b) create offences.”

1. I have come to the view that the advance payment of rent by the pursuer is not a tenancy deposit within the meaning of section 120. It seems to me that these payments were payments of rent and not payments held as security for the performance of any of the tenant’s obligations. In reaching that conclusion, I found the reasoning of the English Court of Appeal in Johnson v Old to be persuasive. I recognise that there are some differences on the facts between the two cases: in Johnson, a deposit was required by the landlord in addition to advance payment of six months’ rent. However, I do not think that significant. One of the central issues addressed in some detail in the case is the very point that has arisen in the present case: do advance payments of rent fall within the definition of “tenancy deposit” under the relevant legislation? In a judgment by Sir John Chadwick (with which LJ Jackson and LJ Arden agreed), 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 (paragraph 36).
2. In the present case, the pursuer 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. In my view, if the pursuer had paid something over and above rent at the start of the lease, then she would have had a far stronger argument that what was being held by the defender was being held as security for the performance of the pursuer’s obligations. But the only payments received by the defender were payments of rent. Although the pursuer stated she understood those to be a deposit, there seemed to me to be no basis for that view. The lease made it clear that no deposit was payable and the pursuer admitted she understood no rent was to be paid on the last month as she had already made payment of that at the start.
3. I do not think there is any significance, as Mr Fraser suggested, in the fact that no deposit was otherwise payable under the lease. The defender sought other protection for the performance of the pursuer’s obligations under the lease in the form of a guarantee signed by the pursuer’s mother.  Nor do I think there is anything in the point made by Mr Fraser that after one year, the lease could continue from month to month. If that were to occur, the pursuer would be under an obligation to continue to make monthly rental payments until she gave 28 days’ written notice under the lease. She would be under no obligation to pay rent for the final month having already paid it at the start. If the defender were to seek to evict her on 7 days’ notice that could only be lawfully done where the pursuer had not complied with her obligations under the lease.
4. In the circumstances, I am not satisfied that the payment of the last month’s rent in advance is money held as security for the performance of any of the pursuer’s obligations under the lease. It follows that the payment by the pursuer of advance rent was not a tenancy deposit within the meaning of section 120 of the 2006 Act. The defender did not receive any tenancy deposit and did not therefore fail to perform any obligation under regulation 3 or regulation 42 of the 2011 Regulations. I therefore grant decree of absolvitor to the defender. I reserve expenses meantime.
5. In case this matter goes further, I would add that, had I been satisfied that advance payment of the last month’s rent was a tenancy deposit, I would have exercised my discretion under regulation 10(a) and sought to arrive at a penalty that was fair, proportionate and just in all the circumstances. In arriving at a penalty, I would have taken into account my finding that the defender has been left out of pocket, with 11 days rent outstanding at the termination of the tenancy. Although the purpose of regulation 10(a) is not to compensate anyone for any loss, it seems to me to be relevant to the exercise of my discretion to take into account that the pursuer has not lost out financially. This is not a case where the defender is frustrating the scheme to the prejudice of the tenant.  Moreover, this case is very different from those cited by Mr Fraser which are all cases where the landlord admitted non-compliance with the 2011 Regulations. In this case the defender did not admit non-compliance on the basis that the lease made it clear no deposit was payable and he did not understand that he had received a deposit. Although the defender is an experienced landlord and the regulations have been in force for several years, his understanding is not an unreasonable or irrational one. It is clear from Johnson that the courts in England have reached different views on the issue prior to the Court of Appeal’s decision. I do not consider it reasonable that the defender be overly penalised for what is ultimately a narrow question of law for which there was no Scottish reported case offering clarification.
6. Of course, had I been satisfied that the defender did not comply with his obligations, regulation 10(a) would have required me to order the pursuer to pay to the defender an amount subject to the fixed maximum of three times the amount of the deposit. In the circumstances of this case, my view is that any amount should be at the very lowest end of the scale as a formal mark of non-compliance only. In all the circumstances, I would have considered it fair, just and proportionate to impose a penalty of £100.