Residential landlords: is returning a tenancy deposit by cheque enough to comply with your obligations before service of a Section 21 Notice?

Residential landlords have various responsibilities and obligations, one of which is that a tenancy deposit received from a tenant must be protected and certain prescribed information given.

If a landlord hasn’t done this and they wish to serve a Section 21 Notice, they can remedy the breach by returning the deposit to the tenant. Unfortunately, sometimes, that is easier said than done.

The decision in the recent County Court Appeal case of Richworth Limited v Billingham (2023) makes the position regarding return of a tenant’s deposit by cheque somewhat ambiguous.

Sophie Kerry, Solicitor in the Litigation Team at Wake Smith, considers the case in more detail.

This article covers:

• Richworth Limited v Billingham (2023) - Case background
• The first hearing – The arguments
• The first hearing – The outcome
• The appeal – The arguments
• The appeal – The outcome
• What residential landlords can learn from this case
• Your next move

Richworth Limited v Billingham (2023) - Case background

In this case, the landlord did not protect the deposit as required. The landlord then asked for the tenant’s bank details ‘in case’ and later returned the deposit by cheque. However, the tenant did not take the cheque to the bank to pay the money in. The tenant did not inform the landlord that they would not accept the deposit via cheque.

The landlord then served a Section 21 Notice and later issued a possession claim via the accelerated possession route.

The tenant filed a defence which included that he did not accept the cheque, did not accept cheques generally due to previous bounced cheques, did not cash the cheque and the landlord’s bank account on which the cheque had been drawn was now closed.

The first hearing – The arguments

At the first hearing, the tenant argued the deposit hadn’t been protected, the prescribed information hadn't been provided and the deposit hadn’t been returned to the tenant.

The landlord argued the cheque was ‘returned’ (as per the wording in the Housing Act 2004) by giving the cheque to the tenant and that the tenant was ambushing the landlord by not paying the cheque in and telling the court at the latest possible opportunity.

The tenant argued ‘return’ meant the deposit needed to have actually been received.

The first hearing – The outcome

The District Judge accepted the landlord’s argument that the tenant had ambushed the landlord and commented the tenant didn’t communicate any non-acceptance of the cheque with the landlord.

A possession order was made but the tenant appealed the decision.

The appeal – The arguments

The tenant argued two grounds of appeal.

Firstly, that the District Judge was incorrect in their finding that the presenting of a cheque was enough to satisfy the ‘return’ of a deposit as per the Housing Act 2004.

Secondly, that the District Judge was wrong to rely on the non -communication of non-acceptance by the tenant. Further, that the District Judge failed to identify that the relevant period for non- communication could only be the period between the receipt of the cheque and the service of the Section 21 Notice.

The appeal – The outcome

The Judge was satisfied that a repayment may be made by cheque. As to whether a tenant is bound by it will depend on the facts of the case. A failure to reject a cheque may be taken as an implied acceptance of payment.

The Judge inferred that the District Judge was wrong to put so much weight on ‘non -communication of non-acceptance’. It will again depend on the facts of the case, such as, prior dealings via cheque and the length of time between the cheque being received and the Section 21 Notice being served.

The Judge commented that the District Judge was wrong to consider ‘ambush’ because the important period of time was the time between the cheque being received and the Section 21 Notice being served. The period in this case (27 April 2022 and 6 May 2022) included a bank holiday and a weekend. Only a few days had passed, and the landlord knew or could have known that the cheque had not been presented.  The landlord was taking a chance as to whether and when the tenant had discovered the cheque and whether and when he would accept payment by cheque.

The appeal was allowed, and the possession order was set aside.

What residential landlords can learn from this case

If a landlord decides to return a deposit via cheque, then the outcome will depend on the facts of the matter.

Landlords, only issue a cheque as a last resort. Communicate with the tenant as much as possible and try to obtain their agreement to the deposit being repaid by cheque. Make sure there is sufficient time between returning the deposit and serving the Section 21 Notice.

This is a non-binding decision as it is a County Court appeal case, but it is of persuasive value.

The Renters Reform Bill is currently making its way through parliament and if it is enacted it will stop landlords from being able to recover possession via a Section 21 Notice. Unfortunately, it is not clear how the legislation, in its final form, will deal with an unprotected deposit.

Your next move

For further advice surrounding landlord obligations call Sophie Kerry at Wake Smith on 0114 224 2036 or email [email protected] or Elizabeth Shaw at Wake Smith on 0114 222 2041 or email [email protected]

Published 02/04/24