15th
Mar 2021
Last month’s (February) news throughout the private rented sector was about the historic ruling made in the high court case Northwood Solihull Ltd v Fearn & Ors (2020) EWHC 3538 (QB), due to the non-compliance of section 44 of the Companies Act 2006 as Northwood had signed a deposit protection certificate on behalf of their client landlord.
This historic ruling was that as an important part of the requisite pre-tenancy prescribed information, the deposit protection certificate for the tenancy should have been signed by two of the company directors, or by a director together with a witness to be properly compliant with section 44 of the Companies Act 2006.
However this wasn’t the case as Northwood’s client landlord signed it instead and was therefore judged to be invalid.
This could now lead to the tenant claiming back from the agents up to three times the amount of the original security deposit as Northwood was found to be guilty of maladministration.
A spokesman for a legal company stated, “The reality of this case is that, as things currently stand, if you as an agent have signed a prescribed (rental deposit) information certificate on behalf of a landlord and you’re a corporate agent, then if it has not been signed by a director and witnessed, then the certificate will be defective."
“This means attempting to serve a Section 21 will not be possible, and a tenant could turn around make a claim against you for up to three times the original deposit.”
Agents who do not follow this signatory process might be subject to claims being made against them for any tenancies carried out in the previous six years because High Court ruling is retrospective.
The agents had in fact given the tenants the prescribed information in July 2014 prior to the Deregulation Act 2015, as the requirement then was that the landlord should sign the prescribed information certificate and give it to the tenant(s) themself.
Taking the rulings from previous similar cases, the court decided that the prescribed information certificate should have been signed by the corporate landlord (Northwood) to be? compliant with section 44 of the Companies Act 2006.
However when it comes to prescribed information being provided after 26 March 2015, the overall position is ‘muddied’ as it is not entirely clear but there may be some little differences.
What agents need to do now:
Whilst the latest wording of the relevant provision refers to a signature by “the landlord or the initial agent”, it is more than likely that this precise explanation suffices so that a corporate landlord (or a corporate agent) must follow the regulations as detailed in section 44 of the Companies Act 2006.
The best practice for agents to safeguard themselves is to follow the relevant process when preparing and then providing the pre-tenancy paperwork. It can be argued that sometimes the process is long winded and not realistic. When for instance the paperwork is provided electronically and an e-signature is used (this is covered by the Electronic Communications Act 2000 and therefore pre-dates the Companies Act), in many cases it is more than likely that it isn’t possible for a company director to e-sign paperwork in the presence of a witness.
Daniel Radford, Head of Legal of a specialist property solicitors told a lettings news hub : "We know two things from the decision in Northwood Solihull Ltd v Fearn & Ors (2020) EWHC 3538 (QB);
• Firstly, we now have authority for the fact that Section 8 notices from corporate landlords don't need to be signed in accordance with Section 44 Companies Act 2006. This is because the notices are not specifically required to be signed by a particular person. ?Section 44 of the Companies Act 2006 requires documents signed by a company to be signed by two directors, or a director and company secretary, or if a sole director, then the director’s signature must be witnessed by another party. Therefore, a Section 8 notice can be signed by anyone authorised by the landlord to do so and there remains no requirement for an agent to sign in accordance with Section 44 of the Companies Act. By virtue of employees of a letting agent being authorised within their employment to act on behalf of their clients, they may therefore act in their employed capacity as ‘agent’ and sign a notice in their own name as employee of the letting which is authorised by the landlord to sign on their behalf.
• Secondly, where a landlord protects a deposit, they must sign a confirmation (in the form of a certificate) themselves to certify compliance with provision of prescribed information, and therefore, a corporate landlord must do this in accordance with Section 44 of the Companies Act. We also know that where the deposit is protected by the landlord's agent, the agent must sign the certificate on the landlord’s behalf.
• The effect of the distinction between signing a Section 8 notice and signing the confirmation certificate, as things stand, is that where a corporate letting agent has protected a deposit on behalf of a landlord, they must sign the confirmation certificate in accordance with Section 44 of the Companies Act. Accordingly, this means that where a corporate letting agent has protected the deposit, at least two of the directors of that corporate agent must sign to certify compliance with the deposit protection rules – and I do not think this is the practice currently adopted by many. I expect this means there will be many landlords that find themselves in breach of the deposit protection requirements – resulting in them being liable to pay statutory compensation to their tenants as well as being prevented from serving Section 21 notices until the breach is remedied.
There is a potential for this position to change in the event of another case being brought before the Court of Appeal - although in my view the interpretation of the legislation and the reasoning for the judgment in Northwood appears to accord with the legislation in force.
This is an unsavoury position for landlords and agents to be in and one which in my view will remain in the absence of intervention from Parliament.”
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