Shock waves from new Court of Appeal ruling on tenancy deposits

A Court of Appeal judgement could have major consequences for the private rented industry, and open landlords up to legal action from tenants because they unwittingly broke the law on tenancy deposit protection.

They, or their agents, did not protect deposits at the time because they did not have to, and therefore did nothing wrong. The law on compulsory protection had not been brought in.

However, if the tenant remained in place and the tenancy became periodic, the law will have been broken by not protecting the deposit.

Landlords may also have broken the law as recently as 30 days ago by not re-protecting deposits when the initial fixed term tenancy became periodic.

This comes as a result of a ruling last Friday in Superstrike Ltd v Marino Rodrigues, where the tenant stayed on after tenancy deposit law became mandatory on April 6, 2007. The tenancy became periodic and, at that point, the landlord should have protected the deposit, it has been ruled.

Broadly, the Court of Appeal has now held that a statutory period tenancy is not a continuation of a fixed term tenancy but a new tenancy.

This means that deposits which have been paid by a tenant must be re-protected each time a fixed tenancy ends and within 30 days of the new statutory periodic tenancy being created.

The greater concern for landlords and agents is that many, including those with ongoing tenancies, will not have re-protected deposits, and not have given the tenants a new deposit protection certificate plus the prescribed information.

The case’s full implications are still being studied by lawyers – and by the tenancy deposit schemes whose rules differ and may now have to be rewritten.

For example, My Deposits has advised that there is no need for new protection when a tenancy becomes statutory periodic. Other schemes simply require that they are informed.

Central to the judgement is that tenants whose deposits were not re-protected when their fixed term tenancy rolled over into a statutory periodic tenancy, may now be able to claim against their landlord. Tenants could argue that any eviction was unlawful, and may also be able to claim back their original deposits plus a penalty.

The Statute of Limitation means that tenants of up to six years ago could make claims.

The Superstrike Ltd v Marino Rodrigues case was heard last month and the decision handed down on Friday.

While the full legal implications are still being scrutinised, what is clear is that the court has said that at the end of a fixed term tenancy, if a new fixed term tenancy is not put in place, when the tenancy becomes a statutory periodic tenancy this becomes a new tenancy.

Until now, it was widely assumed that a statutory periodic tenancy was simply a continuation of a fixed term tenancy, with no need to treat it as a new tenancy for the purposes of tenancy deposit protection.

However, the case makes clear that it is a new tenancy, and the tenant’s deposit must be protected again. This would suggest that the prescribed information must be given to the tenant again, within 30 days, although one lawyer – Tim Briggs of Legal Mentor – says there is no clarity on whether prescribed information must be re-served.

Briggs also says that he hopes that there will be an appeal to the Supreme Court where some “common sense” could be applied.

The Superstrike v Marino Rodrigues case concerned a tenancy that started before mandatory deposit protection took effect on April 6, 2007.

The Court of Appeal has ruled that because it became a statutory periodic tenancy after this date, the deposit needed to have been protected.

The tenancy itself, an Assured Shorthold, began on January 8, 2007, for a fixed term of one year less a day. The tenant paid a deposit of £606.66 – a sum equal to the monthly rent.

On the expiry of the fixed term, under the Housing Act 1988 he became entitled to a statutory periodic tenancy on the equivalent terms. No new tenancy agreement was entered into, and the rent remained the same. The deposit continued to be held by the landlord.

On June 22, 2011, the landlord served a Section 21 notice on the tenant. The landlord was granted possession, but this was then set aside on the grounds of non-compliance with the rules on tenancy deposit protection. The landlord then appealed.

The Court of Appeal ruled that a new tenancy had been created on January 8, 2008, under the Housing Act, and that the landlord had therefore received a deposit which then, by law, had to be protected. It was therefore held that the landlord was not entitled to have served a Section 21 notice and was not entitled to possession.

In a briefing, as a result of this case, Tim Briggs advises:

1) All tenancy deposits should be re-registered at the end of the fixed period of the tenancy, or the landlord is not in compliance with s.215 of the Housing Act 2004, and therefore no valid Section 21 Notice can be served.

2) If the deposit is registered at the beginning of the fixed term before 6 April 2007, but the periodic tenancy begins after 6 April 2007, the deposit needs to be re-registered.

3) If the deposit is not registered before 6 April 2007 and the periodic tenancy starts before that time, no need to register money taken for a deposit.

A full transcript of the Court of Appeal’s judgement is at the first link, while there is some interesting commentary at the second link.

http://www.bailii.org/ew/cases/EWCA/Civ/2013/669.html

http://tinyurl.com/lcex5ue

Article courtesy of Letting Agent Today

RentPro property management software for letting agents and landlords.

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