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New case on tenancy deposits received before April 2007

The Law CourtsNote: see also my more recent post on this case >> here

More Court of Appeal decisions on tenancy deposit issues are coming out – and those niggly issues are gradually being resolved.

Here is the most recent case:

Superstrike Ltd v Rodrigues [2013]

This case (which you can read online here) involved a tenancy where the deposit was paid before April 2007 but where the fixed term ended and the tenancy became a periodic after April 2007.

How did that affect the deposit, and the section 21 notice served in June 2011?  This is what the Court of Appeal decided.

1. There was a new tenancy after the end of the fixed tenancy.

This is actually stated in s5 of the Housing Act 1988, which talks about a periodic tenancy ‘arising’ on the expiry of the fixed term.  So it is nothing new.

2. The deposit is treated as being returned and repaid by the landlord and tenant at that time

Here is the relevant extract from the Judgment on this point (starting midway through paragraph 36):

Something must have happened in January 2008 which led to the result that the deposit was held in relation to the new tenancy.

That something could have been either an actual (or …  physical) payment (but none took place in this instance) or something which amounted to payment. If there was an actual payment or something treated as a payment there must also have been a corresponding receipt.

37. 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 the tenant 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.

That would have been the sensible alternative to the landlord paying the deposit back to the tenant (subject to any claim for want of repair or otherwise which he wanted to assert at that time) and the tenant paying the landlord the equivalent sum under the new tenancy.

38. In my judgment, 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.

The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.

So on the end of a fixed term, the deposit will be treated as having been paid back to the tenant and then repaid to the landlord.

3. As the deposit was not protected within the time limits, the s21 notice was invalid.

So the landlord lost the case.

Note by the way that there was a worrying (for landlords) point raised about the wording of s215 (1) – the section saying that no s21 notice can be served if the deposit is unprotected – which is that on a strict reading is would apply to ALL deposits – including all those also paid before the act came into force.

The Court decided not to deal with this and mentioned that it might have serious consequences.  However no doubt there will be a case on this point at some stage.

What should landlords do?

If you took your deposit before April 2007 and the tenancy became  periodic after April 2007 – then unless you protected the deposit before 6 May 2012 you will have a problem if you ever decide to use section 21, and you will be vulnerable to a claim for the penalty.

The only safe way to deal with the section21 issue will be by refunding the deposit money to the tenant before you serve your s21 notice – or reaching an agreement with them that the money be offset against their rent arrears (and if you do this make sure you have their written agreement, in case they deny it later).

Even if the tenancy became periodic before April 2007, there is a chance that a Court will find that non protection after 6 May 2012 is in breach of the rules, but we won’t know this until there is a case on the point.

Super cautious landlords however might want to consider refunding the money to the tenant anyway, perhaps as a ‘favour’ to tenants in difficulties with their rent arrears, subject to the tenants written confirmation that they agree to the rent being offset against the return of the deposit.

NB If you want to read more about this case, you will find good reports on Nearly Legal and on the Anthony Gold blog. The BAILII report is here.  Plus my more recent post >> here.

About the author

Tessa Shepperson Tessa is a lawyer specialising in residential landlord and tenant law. She runs the Landlord Law website (now in its 12th year) and is also a director of Easy Law Training Ltd and Your Law Store. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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10 Responses to New case on tenancy deposits received before April 2007

  1. Gareth C Thomas says:

    What effect would the creation of a new AST have on this outcome?

    Would a solution be to create a new AST then re-protect the deposit as if it were a new deposit and serve the prescribed information etc.

  2. Way back before the Localism Act amended deposit protection regs I remember reading something about the conundrum of periodic tenancies arising after April 2007 but it’s obviously been on a backburner until now.

    I read an article on this somewhere else and the author said that this would only arise in a few tenancies started a while ago but this isnt so. I see many tenancies over 6 years old and in 70% of cases the landlords I deal with havent protected the deposit anyway.

    Penalty aside in frontline world the real problem for landlords is going to be in the area of housing advice and homelessness prevention. Workers in these fields will be jumping on S21s with unprotected deposits as a way of preventing evictions.

  3. @Gareth I think if you want to serve a section 21 notice, it will be safest if you refund the deposit money to the tenant (and be able to prove that you have done this). Note that this will not affect your liability for the penalty payment.

  4. Tessa
    As I read the judgement the deposit money will not physically have to be repaid to the tenant. Can we have an express clause stating that on the last day of the fixed term the deposit is deemed to have been repaid to the tenant and subsequently paid back to the landlord for the commencement of the statutory periodic and further noted that the deposit will remain registered with the same Deposit Protection Scheme?
    Regards
    James

  5. I think that may depend on the terms and conditions of the individual scheme providers.

  6. David Smith says:

    I don’t think these constructive systems will work. The creation of a statutory periodic tenancy will trigger the payment because it will be a new tennancy and so the deposit will be deemed to be received. The only way I can see to avoid this issue is to draw up the tenancy agreement so that it expressly states that the tenancy will become a periodic tenancy after the end of the fixed term. Arguably this ousts s5 because the tenancy becomes periodic by contract and not by statute so the reprotection provision is never triggered.

    I am not sure there is a lot that a landlord can actually do if they are in a position where they are still holding a deposit for a tenancy that became periodic after April 2007. However, it is my view (although not an issue decided in this case) that anyone holding an unprotected AST deposit at this stage is in difficulty due to the effect if the Localism Act changes and the unfortunate wording of the commencement order.

  7. Thanks David.

    My landlord law tenancy agreements have always (well for a long time) provided for a contractual periodic after the end of the fixed term so hopefully any of my lot in this position will be all right.

    What about tenancies which became (and remain) periodic BEFORE April 2007? There was mention in the case that they might be in difficulties too.

  8. Miles Turner says:

    What do people think about the following clause in the AST

    If, at the date the fixed term stated above expires, the Landlord does not seek possession and the Tenant remains in the Property, they will be considered to have a contractual periodic tenancy following the rules under section 5 of the Housing Act 1988. This will continue until ended by either party. Any contractual periodic tenant will not create a new tenancy but will extend the term of the original fixed term tenancy.

  9. Gareth C Thomas says:

    @ David – so it seems that we now can’t use S21 route to regain possession and therefore have to rely on one of the s8 grounds instead, such as breach of contract or anti-social behaviour or creating a tenancy under false pretences (ie the tenant lied about something on the application form). BUT the next big problem here would be that these are discretionary grounds and could also leave the landlord at risk of costs being awarded against them by the tenant in the event the landlord loses the case.

    What about getting the tenant to surrender the tenancy and move out voluntarily…or the tenant just moving out. Surely that would end the spectre of a claim against the landlord for not re-protecting a deposit after the fixed term AST has ended wouldn’t it?




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