Note: 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 
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.