Deposit schemes unite to take legal advice after Superstrike case

The latest Court of Appeal ruling could mean that new tenancies have to be created monthly, and tenants’ deposits re-protected every time.

It could also mean that deposits which the law now – but not then –  says were not protected properly would have to be returned to the tenant before a Section 21 notice for possession could be served.

Lawyers are citing these as among the potential outcomes of the Superstrike v Rodrigues case.

Justin Selig, of Landlord Action, is among those calling for the case to go to the Supreme Court and is meanwhile advising landlords and agents to take advice from their respective tenancy deposit schemes.

However, there is a difficulty here: the three main tenancy deposit schemes have so far been unable to provide any advice following the ruling last week.

The Superstrike judgment specifically referred to a tenancy deposit taken by a landlord prior to April 6, 2007, when mandatory protection came in.

However, because it says that when a fixed period tenancy rolls over into a period tenancy it becomes a new tenancy, there are major implications for many thousands of tenancies.

In the Superstrike v Rodrigues case, it was ruled that the landlord should have protected the deposit, and because this was not done, had no right to use a Section 21 notice to seek possession of the property.

Earlier this week, DPS, MyDeposits and TDS issued a joint statement: “Whilst landlords and lettings agents take their own legal advice, we will be considering the implications of this judgment for deposit protection and the service of prescribed information.

“We will also need to consult the DCLG on this and we will be issuing a further joint statement when we have fully considered the matter.”

Yesterday, all three of the services – which may have to rewrite their own procedures –said there was no update.

However, lawyers are beginning to issue their own commentary on a case which could see thousands of landlords faced with the prospect of legal action from tenants, going back six years.

Selig, a solicitor and director at Landlord Action, urged Superstrike, as landlord, to take the case to the Supreme Court for further clarification.

He confirmed that the case has implications for every landlord and agent whose tenant occupies a property under an Assured Shorthold Tenancy and where a deposit has been taken.

He said: “The question is, where you are holding a protected deposit, do you need to re-protect it each time there is a renewal of a tenancy? At present, I think the answer to that is, yes.

“There is a further problem. A periodic tenancy is deemed to be renewed at the expiry of each period.

“Therefore, if you follow the argument – this would mean that the deposit would need to be re-protected at the beginning of each period. Most periodic tenancies are monthly – so the deposit would need to be re-protected monthly.

“Obviously this does not make sense, nor I am sure is this the intention of the legislation.”

He advised: “The first thing I would do is to obtain written clarification from the deposit protection company you are using as to their take on the ruling, and comply with their recommendations.

“Secondly, as a minimum, and you have a fixed term tenancy about to go on to a periodic, you should at least protect your deposit again when it goes periodic. (Personally, I would actually return the deposit to the tenant – but I appreciate that this is not always practical.)

“Thirdly, and for belt and braces protection – where you are still holding the deposit, you may want to consider not allowing the tenancy to go on to periodic, but to reissue the tenant with a new fixed term – and re-protecting the deposit for that fixed term.”

Nigel Rowley, head of litigation at Mackrell Turner Garrett in Surrey and London, said it was possible that a deposit might not have to be re-protected at periodic stages, but that a fresh set of prescribed information might have to be given out each time.

He said: “Since the Court of Appeal has held that a statutory periodic tenancy is not a continuation of a fixed term tenancy but a new tenancy, the significance of this does create a knock-on effect with all ASTs including those entered into post-April 2007.

“A deposit is essentially ‘re-taken’ by the landlord upon a statutory periodic tenancy and renewal. There does not seem to be any suggestion that a deposit needs unprotecting and then re-protecting at the stage of statutory periodic and renewals, though we would not risk suggesting otherwise until there is some judgment on this.

“However, this might mean that new prescribed information must be given not only at the time of physically receiving the deposit but also whenever a tenancy becomes statutory periodic or a renewal is provided.

“Another knock-on effect may result in the TDP schemes having to be rewritten.

“According to their own individual rules, a deposit remains protected if the tenancy agreement continues on a statutory periodic tenancy after the end of the fixed term –  provided, for example, that landlords reflect this on the TDS database before the last day of the fixed term.”

A colleague of Rowley’s, Tony Kent, said that landlords who had inadvertently failed to comply might have to return a tenant’s deposit if they wanted to serve a Section 21 notice.

He said: “The Court suggested this but did not make a decision on that point.”

He too thought the case should be further appealed.

Article courtesy of Letting Agent Today

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