Tenancy deposits, where are we now?

Practitioners will be aware that from 6th April 2007, the date on which the relevant provisions of the Housing Act 2004 came into effect, landlords have been required to safeguard their tenant’s deposit by the use of a government authorised tenancy deposit scheme. Those who have not complied face potential financial sanctions and have been unable to serve a section 21 notice so as to recover possession.

Tenancies predating April 2007, with no deposit safeguards in place, which have continued in one form or another beyond this time still prove problematic. In these circumstances does the deposit fall to be dealt with under the Housing Act 2004 requirements and do the penalties for non compliance apply? Or is there no requirement to use a deposit scheme?

In June of last year the Court of Appeal in Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 sought to clarify the position, the Deregulation Bill when it comes into effect will make further changes still.

The Superstrike decision

In this case Rodrigues took an assured shorthold tenancy of the relevant premises from Superstrike on 8th January 2007 for the term of almost 1 year. A monthly rent was payable and a deposit equivalent to one months rent was agreed as a term of the tenancy at that time. At expiry of the fixed term, and by virtue of s.5 of the Housing Act 1988, Rodrigues became entitled to a statutory periodic tenancy on equivalent terms.

On 22nd June 2011 Superstrike served a notice under s.21 of the 1988 acquiring possession. The issue was whether or not it was entitled to do so, notwithanding that the paid deposit had not been protected by being dealt with in accordance with a scheme authorised under the 2004 Act.

The first issue that the Court considered was whether or not the statutory periodic tenancy constituted a new tenancy. It held that it did:

“It is clear from the 1988 Act that what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant’s previous status. I do not see that there can be any doubt as to that. It was so held in relation to a comparable provision in the 1988 Act in N & D (London) Ltd v Gadson (1991) 24 HLR 64.”

The second question then was when had the deposit been “received’ by the landlord in respect of that statutory periodic tenancy. On this issue the Court of Appeal said:

Once the new statutory periodic tenancy had come into being… it must have been the landlord’s position, by then, that it held the sum of £606.66 as a deposit as security for the performance of the tenant’s obligations, or for the discharge of any liability of the tenant, arising under or in connection with the new tenancy. That could only be the correct legal position if that sum of money was to be treated as having been paid pursuant to the tenant’s obligation under the periodic tenancy to provide a deposit. That obligation only arose on the expiry of the fixed term tenancy, so the payment at the beginning of that fixed term cannot have given rise to the position which obtained once the fixed term had expired. Something must have happened in January 2008 which led to the result that the deposit was held in relation to the new tenancy…

If the parties had been aware of the true nature of the legal consequences in January 2008 of the expiry of the express fixed term tenancy without the tenant either giving up possession or entering into a new express tenancy agreement, they might have had a conversation or other exchange about the deposit, in which they agreed that the landlord should continue to hold the deposit, and that it should for the future be treated as the deposit under the new tenancy, instead of under the former fixed term tenancy. That would have been the sensible alternative to the landlord paying the deposit back to the tenant (subject to any claim for want of repair or otherwise which he wanted to assert at that time) and the tenant paying the landlord the equivalent sum under the new tenancy.

In my judgment, although there is no evidence that the parties said or did anything of that kind, and it is likely that they were not aware of the nature or incidents of the legal process that took place when the fixed term tenancy came to an end, nevertheless the position as between them should be treated in the same way as if they had had such a discussion. The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.

It follows that, on my analysis, the tenant did pay, and the landlord did receive, the sum of £606.66 by way of a deposit in respect of the new periodic tenancy in January 2008.”

Having found that the landlord received the deposit in January 2008, ie at the time the new tenancy was created, the Court observed that the deposit registration requirements then applied. On the basis that the Landlord had not complied with these provisions they were unable to give a valid notice pursuant to section 21 Housing Act 1988 and accordingly their claim for possession was dismissed.

The landlord was required to protect the tenant’s deposit for the periodic tenancy or alternatively had to return it before being able to commence section 21 proceedings.

The decision in Superstrike also proves problematic for pre- April 2007 assured shorthold tenancies that expire and become period tenancies generally. Landlords who have taken steps to protect the deposit for their assured shorthold tenancies are required to “re-protect” them at the point that the tenancy changes to a periodic one. In practice a landlord will be required to re-serve the prescribed information to their tenants. This requirement is invariably overlooked.

The Amended Deregulation Bill

In July the Government moved an amendment to the Deregulation Bill in Parliament to end any uncertainty surrounding tenancy deposits following the case of Superstrike.

The Solicitor-General, Oliver Heald MP, supported the amendment saying:

“It was never intended that the tenancy deposit protection legislation should apply to a deposit received prior to the date on which legislation came into force in circumstances in which the tenancy subsequently rolled over and continued as a statutory periodic tenancy.

It was made clear in the briefing the Government published in 2007 that there was no intention of affecting prior deposits. It was also never the intention that landlords who had protected deposits and who had given their tenants information about that protection should then have to reissue the same information about the deposit protection each and every time the tenancy was renewed, although the same deposit would continue to be protected in the same scheme from one tenancy to the next.

That, however, was the result of the Court of Appeal’s decision in the case of Superstrike Ltd v. Marino Rodrigues….”

The amendment, which will be a new S.215A to S.215D to the Housing Act 2004, will provide that where a deposit is taken on after 6th April 2007 and protected and the prescribed information is served. Then this is treated as if those requirements had been complied with for any subsequent statutory periodic tenancy. – Once in force there will be no need to re-protect the deposit or re-serve the prescribed information.

Where those requirements did not apply to the first tenancy, ie those commencing before 6th April 2007 and a replacement periodic tenancy comes into effect after 6th April 2007, the landlord will have 90 days from commencement of the changes in the deregulation Act to protect the deposit and send the requisite information to the tenant.

The Deregulation Bill is at the time of writing in the House of Lords and yet to receive Royal Assent. Pending this, the decision in Superstrike will still apply and landlords will still be required to monitor any changes to their tenancy agreements with care.

 

 

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