Alternative Dispute Resolution and Tenancy Deposits
Alternative methods of dispute resolution have been around for many years, particularly since Lord Woolf’s reforms to the civil legal system, but the impact on the private rented sector has been fairly limited in formal terms. With the passing of the Housing Act 2004, many landlords and agents will be subject to alternative dispute resolution (ADR) for the first time – the Act requires that each of the statutory tenancy deposit schemes must provide ADR facilities to enable the resolution of disputes relating to tenancy deposits.What is ADR?
ADR is a mechanism whereby disputes may be resolved outside the traditional court process by conventional litigation. Traditional litigation tends to be expensive and complex whereas ADR tends to be a more informal process where the parties are encouraged to resolve the dispute in an amicable fashion. ADR provides a variety of alternative techniques to the parties, of which the most important of these are negotiation, mediation and arbitration.ADR has become more strongly incorporated into our legal process since the late 90s. In disputes ranging from family law issues to commercial disputes, a judge will often order that the parties enter into mediation or negotiation as an initial attempt to resolve the dispute. In the US, where ADR has operated for a long time, large numbers of disputes are resolved by mediation instead of by a judge.
ArbitrationAny dispute can be sorted by arbitration if the parties both opt for this method. The purpose of arbitration is always the same; to break the deadlock in the quickest and most effective way. In commerce, arbitration is a sensible alternative to expensive and long-winded formal court proceedings. Once appointed, the arbitrator sets about objectively assessing the arguments on both sides of the dispute before arbitrating, or making a decision.
Some practitioners may have already used an arbitration process – the Small Claims Court provides an arbitration service for money claims up to £5,000, the district judge acting as arbitrator. In UK Small Claims Court arbitration, complex county court rules and procedures are, for the most part, set aside, and the judge often acts as much as a facilitator and mediator in the process before making the final decision or award.
Arbitration and the law
Arbitration is governed by the Arbitration Act 1996 which came into force on 1 January 1997, and requires the parties to sign a written arbitration agreement if the proceedings are to be given the legal status which Part 1 of the Act provides for them. The arbitration can be carried out by any officially appointed arbitrator, and the courts will generally accept their decision - unless the arbitrator has made a fundamental error in law, or neglected important evidence etc.
Some other points of law:
- Neither side can be forced to go to arbitration – you always have the choice of using the courts. The Arbitration Act 1996 outlaws unfair contract terms that require disputes below £5,000 to be referred to arbitration; such terms are unlikely to be legally binding.
- Arbitration schemes are offered as alternatives to court, not in addition, so you have to choose which route to follow.
- Arbitration schemes generally use written evidence only, so you cannot present your case in person, and it is not always easy to put your problem clearly in writing. Court, on the other hand, gives you the chance to put your side of the case personally and refute statements made by the other side.
Deposits
The Housing Act 2004 makes provision for the protection of tenants’ deposits. It also requires that:"(1) Every custodial or insurance scheme must provide for facilities to be available for enabling disputes relating to tenancy deposits subject to the scheme to be resolved without recourse to litigation.
(2) The scheme must not, however, make the use of such facilities compulsory in the event of such a dispute."
We now know that the adjudication service under the new TDP rules will be provided by one of two organisations; The Dispute Service (for their own scheme) and The Chartered Institute of Arbitrators (for the other two schemes).
How will TDP adjudication work?
If the landlord and tenant cannot agree on the amount of deduction from the tenant’s deposit at the end of the tenancy, then the following process will come into effect.1. Notification. Either the landlord (or landlord’s agent) or the tenant notifies the ADR scheme of the dispute. The landlord or his agent is then expected to forward that part of the deposit in dispute to the adjudicator (if held under an insured scheme). The remainder of the deposit that is not in dispute can be returned to either the tenant or the landlord as agreed.
2. The dispute is assigned to an adjudicator - from a panel drawn from relevant professions: lawyers, inventory clerks, surveyors, rent officers, architects, etc.
3. The adjudicator will write to the other party asking whether they want to contest the dispute and, if so, will ask them to submit their own response or version of the events leading to the dispute.
4. The adjudicator then submits a report. This decision is then sent out to the parties, and the deposit is paid out as directed by the adjudicator.
Appeal
There will be no general right to appeal from the decision of the ADR service in the scheme above. However, this does not remove the statutory rights of the parties to ask the court to set his adjudication aside. In doing so, one or both parties may find themselves exposed to a liability to pay costs.It is unlikely that the court would alter an adjudication ruling unless the adjudicator had made a fundamental error in law, or a similar mistake such as neglecting important evidence.
Case Example
Cited below is the summary of an arbitration decision taken under the Government’s original Tenancy Deposit Scheme.
Amount of deposit: £2,910.00
Amount in dispute: £1,525.23
Awarded to: landlord - £598.67
tenant - £926.56
The landlord demanded £337.00 for cleaning expenses, drawing attention to discoloration on various curtains, and to stains and the general condition of floors in the bathroom and bedroom. Damage was also reported to the kitchen hob, expenses incurred in tidying the garden, and various missing items.
Due to the fact that the curtains had not been cleaned prior to the beginning of the tenancy it was resolved that only 25% of the invoice should be paid by the tenants. The landlord was dissatisfied with the condition of the floors in both the bathroom and the bedroom. Considering that the future desirability of the property could be hindered, it was felt that one third of the cleaning costs should be covered by the tenants. Furthermore, there was the issue of the damage to the kitchen hob, which the landlord claimed to have occurred during tenancy. This was shrouded in ambiguity, as the original condition of the hob was unknown. The adjudicator concluded that the hob may have been already faulty, making a 50/50 split of repair costs a reasonable settlement. The garden was the final issue concerned with the actual property. The landlord employed the services of landscape gardeners to rectify its condition. Costs amounted to £150.00 that the adjudicator considered this reasonable as the upkeep of the garden was a condition of the tenancy agreement.
The checkout inventory identified several minor missing items, including bulbs, a strainer plug, a gas tap and a broom. The adjudicator awarded £49.95 for these missing items bearing in mind fair wear and tear. Two incidents of property maintenance resulted in unpaid bills at the end of the tenancy. The first incident involved the oven repair and the second issue involved the control of an "ant swarm". Neither of these fell under the repairing obligations of the landlord, therefore the full amount was charged to the tenants.
Evidence
This example (and other similar case studies published by the Independent Housing Ombudsman) illustrate how the alternative dispute resolution systems work in practice.These determinations help clarify the vital importance given to accurate and comprehensive inventories and condition reports both at the start and at the end of a tenancy. Both agents and landlords have a responsibility in this respect and to record all communication from the tenant regarding problems and repairs at the property. The presence and accuracy of evidence is of considerable importance to the final decision of the adjudicator. Where the landlord did not provide suitable evidence (e.g. lack of check-in inventory, or detail on property condition at check-in) then its absence often resulted in a negative finding. I.e. the onus is on the landlord to prove damage, dilapidation or missing items – if these cannot be proven on the evidence supplied, the landlord was often unsuccessful in the claim. In other words, the adjudicator will assume that the tenant is innocent unless the landlord can prove them guilty.
For all the TDP dispute resolution schemes, the intention is that there will be no adjudication charge made to tenants or landlords. The costs of running the adjudication process will be covered from the annual membership fees to the scheme or, for the custodial scheme, from the interest earned.