In the recent case of Superstrike Limited v Marino Rodrigues the Court of Appeal considered whether the Claimant Landlord was entitled to serve a notice under section 21 of the Housing Act 1988 (“Section 21 Notice”) on the Defendant Tenant who had entered into an assured shorthold tenancy before legislation required the deposit to be protected, and remained in the property on a statutory periodic tenancy which began after legislation protecting deposits had been implemented.

Facts

The facts of the case are as follows:

• The tenancy began on 8 January 2007, for a fixed term of 1 year. A deposit of £606.66 was payable under the terms of the Tenancy Agreement. The deposit was never protected as this was not a requirement at the time of receipt.
• The tenancy continued past the fixed term and the Tenant was entitled to remain in possession of the property by virtue of a periodic tenancy arising under section 5(2) Housing Act 1988. The periodic tenancy began after the tenancy deposit requirements had been brought into force.
• A Section 21 Notice was served in June 2011 to end the periodic tenancy.
• A Possession Order was granted on 8 May 2012, but was set aside on 26 June 2012 on the grounds of non-compliance with the legislation relating to tenants’ deposits.

The Judgment

The issue before the Court of Appeal was to consider whether the law required the Landlord to deal with the deposit in accordance with an authorised scheme within 14 days of the Tenant becoming the Tenant under the new statutory periodic tenancy, where the new periodic tenancy had begun after the deposit requirements had arisen. The determination of this issue was critical in deciding whether a valid Section 21 Notice had been served, as a Landlord who does not deal with the deposit under the new scheme when required is prevented from serving a Section 21 Notice.

The Court of Appeal considered in detail the legislation in place to protect tenants’ deposits. They noted, but did not consider, the amendments made to the Housing Act 2004 (the “2004 Act”) by the Localism Act 2011, one of which was to extend the 14 day requirement to 30 days.

The Court of Appeal held that a statutory periodic tenancy is a “new and distinct tenancy” and not simply a continuation of the assured shorthold tenancy previously held. They confirmed that the correct legal position therefore was that the deposit held by the Landlord at the end of the fixed term was to be treated as having been paid pursuant to the Tenant’s obligations under the new periodic Tenancy to provide a deposit. In this case, the periodic tenancy came into being after the commencement of the 2004 Act and accordingly, the Court concluded the deposit must be protected in accordance with that Act. The Court found that the Landlord had failed to protect the deposit and therefore was unable to serve a Section 21 Notice, rendering the notice given ineffective, and the Order for possession void.

Comment

The Court of Appeal’s decision has divided opinion amongst practitioners and academics and has led to much fierce debate. It is, however, important to place this case in context and remember that appeal judges only consider the case presented to them, therefore the judgment is only applicable to cases of the same factual background. Accordingly, this case does not provide a decision on any tenancies that began after the commencement of the 2004 Act. Furthermore, there is nothing in the judgment that appears to require landlords to repay or re-protect deposits held lawfully in accordance with authorised schemes when that tenancy becomes periodic, nor does the judgement consider the need to provide the prescribed information again upon the tenancy becoming periodic.

Some practitioners are of the opinion that the logical conclusion of the Court’s decision is to repay the deposit at the end of the assured shorthold tenancy and immediately request the equivalent sum be paid under the new periodic tenancy. This new deposit would also have to be re-protected under the provisions of the 2004 Act. This was not the conclusion of the Court of Appeal. In any event, practically this would cause landlords a number of administrative difficulties, as well as leaving them at risk during the period when the deposit was not in a scheme or with the landlord. Further, it does not seem logical as the very nature of a periodic tenancy is that it runs on a month to month basis. Adopting this rationale, the Landlord would have to undertake this procedure every month which is unreasonably arduous and cannot have been the intention of the Court. In obiter, the Court suggests that a sensible alternative to paying back the deposit to the tenant was for the parties “to have a sensible conversation, or exchange about the deposit and agree that the deposit should be held by the Landlord and treated as the deposit under the new statutory tenancy”. It is not therefore necessary for landlords to repay the deposits at the end of an assured shorthold tenancy that is being held over. Neither does it appear necessary for landlords to re-protect deposits already held by them at the end of an assured shorthold tenacy which continues on to a periodic tenancy. A cautious, and perhaps sensible approach would be to hold, and document, a conversation with the tenant along the lines set out above by the Court and re-issue the prescribed information to the tenant at the start of the periodic tenancy.

In conclusion, the starting point for landlords is to carefully consider the facts of their case. If, as in this case, the fixed tenancy began before the introduction of the 2004 Act and became a periodic tenancy after this date and the deposit was not protected within the prescribed time, the result will be that the landlord is unable to issue a Section 21 Notice unless they pay the deposit back to the tenant before issuing the Notice.

This case is a useful reminder of the importance of complying with the legislation relating to tenancy deposits and the implications of not doing so.

For further information, please contact Ann Ebberson or the Partner with whom you usually deal.