The Court of Appeal has recently found that a landlord was not entitled to serve a notice for possession, under section 21 of the Housing Act 1988, because the tenant's deposit had not been held in an authorised tenancy deposit scheme in compliance with the Housing Act 2004. This was despite the original tenancy having been agreed before the provisions of the 2004 Act came into force.
The facts in Superstrike Ltd v Rodrigues, heard in May this year, are straightforward. Mr Rodrigues had an assured shorthold tenancy for a fixed period of one year less a day from 8 January 2007. He had paid one month's rent as a deposit under the terms of the agreement. No new tenancy agreement was entered into at the expiry of the term, so he became entitled to a statutory periodic tenancy on equivalent terms under section 5 of the Housing Act 1988. Six months later, Superstrike, the landlord company, issued a notice for possession under section 21 and started possession proceedings under the accelerated procedure.
Superstrike obtained a possession order on 8th May 2012, but it was set aside on the grounds that the company had failed to comply with deposit requirements of section 213 of the Housing Act 2004, which came into force on 6 April 2007. The landlord appealed successfully to a circuit judge, who held that the provisions did not apply as the deposit had been paid before the act came into force. The possession order was reinstated and Mr Rodrigues turned to the Court of Appeal.
The appeal was allowed. Neither party argued that section 213 affected deposits already paid and received under tenancies already in existence. This was agreed. However, the court agreed with Mr Rodrigues that since the original tenancy was no longer in existence, the deposit had to be regarded as being paid and received in respect of the new statutory periodic tenancy and not the original fixed-term tenancy.
The new statutory tenancy (as an automatic replica of the original tenancy) contained an equivalent provision on the deposit and consequently the court held that Mr Rodrigues should be treated as having paid the amount to his landlord in respect of the new tenancy. This meant that Mr Rodrigues was held to have paid the deposit for his new tenancy after the provisions of the Housing Act 2004 had come into force. Superstrike therefore had an obligation to make arrangements for the deposit to be held in an authorised scheme if it wanted to serve a notice under section 21 of the Housing Act 1988. Because Superstrike had not made these arrangements, the court ruled that they were not entitled to serve notice and the possession order should not have been made.
The future for landlords and tenants
This decision has resulted in a change in direction in relation to deposit protection. Currently, none of the approved deposit schemes require landlords to re-protect deposits when their tenants switch to statutory periodic tenancies. The Deposit Protection Service, The Tenancy Deposit Scheme and MyDeposits only require landlords to re-protect deposits each time they issue a new assured shorthold tenancy, not when it changes to a statutory periodic tenancy. The decision in Superstrike v Rodrigues has meant that this procedure needs to be reviewed as many landlords are not compliant with their deposit obligations.
The consequences for non compliance are severe. The landlord can be ordered to return the deposit to the tenant and pay him/her a sum equal to three times the amount of the deposit initially paid. Additionally, the landlord cannot serve a section 21 notice until the deposit is protected. These are severe sanctions when the landlord may have been completely unaware that the relevant provisions applied at all.
While the consequences for the tenant are not so serious (after all, the sanctions of non-compliance are in the tenant's favour), the tenant's deposit remains unprotected and vulnerable. The tenancy deposit schemes were introduced to safeguard the tenant's deposit and ensure deposit funds were not misappropriated by private sector landlords. The decision in Superstrike highlights that there are more deposits that should be protected. A tenant who finds himself in the same position as Mr Rodrigues is losing out on the additional security intended by the legislation.
Administratively, the decision in this case could prove challenging. Unprotected deposits will need to be identified and protected before any action is brought against the relevant landlord for non compliance. All of the deposit protection schemes are reviewing the judgment in the Superstrike v Rodrigues and consulting with the Department for Communities and Local Government on this, which may lead to changes to their rules.
While the decision is welcome for the relevant tenants who will be afforded better deposit protection, it is likely to cause worry for those landlords who thought the legislation did not apply.
About the author
Katriona Lovelock is a partner in the Property Litigation Team at Ashfords
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