The Court of Appeal rule on tenancy deposits: Superstrike Ltd v Rodrigues [2013] EWCA Civ 669

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The Court of Appeal has recently held that a landlord who received a deposit from his tenant prior to 6 April 2007 (the date on which the Housing Act 2004 was brought into effect) must comply with the obligations set out in section 213 Housing Act 2004, namely that the deposit must be paid into an authorised tenancy deposit scheme within 30 days of the sum being received.

If these obligations are not complied with, then the landlord will not be entitled to serve a notice for possession under section 21 Housing Act 1988 and therefore, would not be entitled to obtain possession of the property at that time.

Facts

In this case, the Defendant took an assured shorthold tenancy of the relevant premises from the Claimant on 8 January 2007, for a fixed term of one year less one day, at a monthly rent of £606.66.

A deposit of the same amount was also paid to the landlord at this time, under the terms of the tenancy agreement.

At the expiry of the fixed term, the Defendant became entitled to a statutory periodic tenancy on equivalent terms, due to the effect of section 5 Housing Act 1988. On 22 June 2011, the Claimant served a section 21 notice and applied to the county court for possession. On 8 May 2012 a possession order was made which was then set aside on 26 June 2012 on the grounds of non-compliance with the provisions relating to tenants' deposits.

The Claimant appealed this decision.

The issue was whether the Claimant was entitled to serve a section 21 notice, as the Defendant's deposit had not been protected in accordance with the 2004 Act.

The appeal was allowed.

It was held that the legislation did require the Defendant's deposit to be held in accordance with an authorised scheme, no later than the end of January 2008. As this had not been done, the Claimant was not entitled to serve a notice under section 21 and was not entitled to possession.

Lord Justice Lloyd stated at paragraph 37 of the judgment:

"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 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."

He continued at paragraph 38 to state:

"…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."

Therefore, when a fixed term shorthold tenancy has been agreed before 6 April 2007 and a tenant paid a deposit which was held over after the fixed term of the tenancy expired, a landlord would need to protect the deposit under a statutory scheme.

Lord Justice Lloyd does make an obiter dictum comment, at paragraph 42 of his judgment that "it may be…that the only way in which the landlord can now escape from the provisions of section 215(1) is by returning the deposit to the tenant." However, this is a matter which would need to be tested in subsequent case law.

A landlord needs to protect a tenant's deposit under a statutory scheme within 30 days of the payment being received, otherwise an attempt to serve a notice under section 21 requiring possession will be ineffective.

Indeed, if a landlord fails to do this, a court may order the landlord to pay a sum not less than the amount of the deposit and not more than three times that amount to the tenant. This may be particularly worrying to landlords who hold multiple properties.

This judgment is helpful in providing clarification that if a shorthold tenancy was entered into before 6th April 2007 for a fixed term and then continued as a periodic shorthold tenancy after 6th April 2007, the deposit will be treated as paid and received in respect of that periodic tenancy and the obligation to protect it under a statutory scheme will apply.