News broke in February of a landmark ruling in the high court in the case of Northwood Solihull Ltd v Fearn & Ors (2020) EWHC 3538 (QB) relating to to the non-adherence with section 44 of the Companies Act 2006 and where a deposit protection certificate was signed by Northwood on behalf of their client landlord.

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This specific ruling was that, as a component of the requisite pre-tenancy prescribed information, the deposit protection certificate for the tenancy in question should have been signed in accordance with section 44 of the Companies Act 2006 i.e. by two company directors, a director and a secretary, or a director and a witness.

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As it wasn’t, the paperwork was ruled invalid, meaning the tenants may be able to claim up to three times the amount of the security deposit from the agents on the basis of maladministration.

 

The Upshot

 

David Smith of JMW Solicitors LLP 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,”.

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“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.”

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Agents having not complied with this signatory process might be subject to claims against them for any tenancies executed in the previous six years as the High Court ruling is retrospective.

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In Northwood’s case, the prescribed information had been given to the tenants in July 2014, pre-Deregulation Act 2015. The requirement at the time was that a prescribed information certificate “signed by the landlord” had to be given to the tenant.

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Following previous decisions, the court considered that the corporate landlord should have signed the prescribed information certificate in accordance with section 44 of the Companies Act 2006.

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As far as prescribed information provided after 26 March 2015 is concerned, the position is less clear, but may not be all that different.

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What agents should do

 

While the new wording of the relevant provision now refers to a signature by “the landlord or the initial agent”, it is likely that this is specific enough that a corporate landlord (or a corporate agent) should comply with section 44 of the Companies Act 2006.

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It is therefore advisable to follow the relevant process as a safer approach to executing this pre-tenancy paperwork. Though many could argue this is onerous and, in some cases, not practicable. In the instances where paperwork is administered electronically and e-signature is employed (whose legal status pre-dates the Companies Act; within the Electronic Communications Act 2000), in most situations it would be impossible for a company director to e-sign the documents and for this to have been witnessed.

 

Daniel Radford, Head of Legal at specialist property solicitors Ashley Taylors, told The Lettings 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. ​​

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• 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. 

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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. 

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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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