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Tenancy deposit protection in the light of Superstrike v Rodrigues

HeadacheThe Superstrike case on tenancy deposit protection, which burst onto the legal landscape a couple of weeks ago (and which I initially reported on here) seems to have caused quite a furore among the landlord community.

What the case said

I have to say when it first came out I rather assumed it would have quite a limited remit.

The case involves a landlord who took a deposit before the tenancy deposit regulations came into force in April 2007 where the fixed term ended after that time. He failed to protect the deposit as he did not think he had to.

However the Court of Appeal decided that he was at fault in failing to protect and awarded judgment for the tenant. There were two reasons for their decision:

1. The periodic tenancy which arises under s5 of the Housing Act 1988 at the end of a fixed term where the tenant stays on, is in fact a new tenancy (although lawyers had long been aware of this) and

2. The deposit would be treated as having been paid back to the tenant and repaid to the landlord at that stage, meaning that the deposit then needed to be protected.

It is the second finding which has caused the problem, as it has been pointed out that this could mean that all other deposits paid may need to be re-protected and the prescribed information re-served if tenants stay on after the fixed term ends as a statutory periodic tenant.

Leaving thousands of landlords who believed that they had acted properly, worried that they are at risk of claims by their tenants for the penalty.

Its effect on tenancy deposit protection practice

One of the problems about our legal system is that it is difficult to know precisely how this case will be interpreted by other Judges coming later.

  • For example it could be interpreted very narrowly, saying that it only applies to deposits paid before April 2007 where the deposit had never ever been protected (differentiating it from situations where landlords HAVE protected their deposits before the tenancy went periodic).
  • Or it could be interpreted very widely – there are even suggestions that a deposit might have to be re-protected every month for a monthly periodic tenancy!

The decision could also be appealed to the Supreme Court where the judgement could be overturned or the regulations interpreted in a different way. This would be helpful but it depends on the parties and whether they can afford to fund it.

What the legislation says

In the meantime, lets take a look at the legislation itself. First s213(1) which says:

213 (1) Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.

This begs the question: when is it received? Is it received when the money is actually paid to the landlord? Or is it deemed ‘received’ again every time a tenancy agreement changes from a fixed term to a periodic tenancy under the provisions of s5 of the Housing Act 1988?

There is then the question of what the landlord must do when the deposit is ‘received’.

S213(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of [30] days beginning with the date on which it is received.

So this then ties the landlords obligations to the requirements of the scheme he is using. It is arguable then, that if the scheme provides for the deposit to continue to be protected in the event of a new statutory periodic tenancy (SPT) arising, that the landlord will be compliant.

What do the schemes terms and conditions say?

  • The TDS terms and conditions specifically state (7.10) that the deposit will remain protected where a statutory periodic tenancy follows a fixed term tenancy.
  • My Deposits require landlords to let them know if the tenancy is to continue as a periodic or new fixed term but then says at C4.2 “A new Protection is NOT required if the original fixed term of the AST continues as an SPT
  • DPS – I cannot immediately find any reference to SPTs in either of the terms and conditions.
  • Capita say in section 4.6 that a further fee will be payable if the tenancy becomes a SPT and that the deposit will not be protected until this is paid.

It looks therefore, with TDS and My Deposits anyway, as if landlords will at least be complaint so far as the protection of the deposit is concerned. Remember that the Superstrike case is in the context of a deposit which had never been protected at all.

All of the deposit companies (apart from Capita) have a notice on their websites saying that they are in consultation with the Department of Communities and Local Government about this case, so we need to wait and see what they say.

Prescribed information

The final part of the jigsaw is the service of the prescribed information

S213 (5) A landlord who has received such a tenancy deposit must give the tenant and any relevant person such information relating to—

(a) the authorised scheme applying to the deposit,
(b) compliance by the landlord with the initial requirements of the scheme in relation to the deposit, and
(c) the operation of provisions of this Chapter in relation to the deposit,

as may be prescribed.

(6) The information required by subsection (5) must be given to the tenant and any relevant person—

(a) in the prescribed form or in a form substantially to the same effect, and
(b) within the period of 30 days beginning with the date on which the deposit is received by the landlord.

Again this depends on the interpretation of the word ‘received’. We will have to wait and see what transpires on this point.

David Smith in the Anthony Gold blog comments that

it would be a good argument to make that the landlord had already complied with the prescribed information requirement by serving it on the original tenancy as there will not have been any change in that information.

Which sounds sensible to me.

Even if that argument is not accepted, so far as s21 notices are concerned, the general understanding is that these can be served after a late service of the prescribed information (s215(2), so if the deposit is protected, landlords should still be able to serve a valid s21 notice and evict tenants if necessary.

A request to government

This whole sorry situation would never have happened if only this legislation had been drafted in a clear and comprehensive manner.

I am a trained solicitor and I have to say that I find it very difficult to read and make sense of this legislation. These laws are intended for ordinary people. How are they supposed to act in accordance with the law if the true meaning of the law cannot be known until after a series of Court of Appeal decisions?

PLEASE can we have more clarity in our legislation.

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Important note. If you are reading an old post, remember that the law may have changed since it was written.

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18 Responses to Tenancy deposit protection in the light of Superstrike v Rodrigues

  1. Also consider that if a new tenancy starts at change to periodic and we are assumed to have handed back the deposit, then any damage caused during the first ast period would have to be logged at an inspection and withheld at that point, otherwise we will have accepted the condition of the property at the start of the new (periodic) tenancy and will be stuck with it when the tenant moves out. will we have to carry out inspections monthly or weekly if tenant pays weekly in a periodic? who is going to pay the costs of renewing a deposit protection weekly?
    TDC Law is a shambles!

  2. An unintended consequence of tenancy deposit protection is that landlords are moving away from taking traditional deposits and finding other ways to protect themselves instead (Home owning guarantors, RGI, etc).

    It is a shame for those tenants whose only way to be an acceptable risk was to pay a deposit.

  3. The problem with deposit legislation and legal case history is that everything is focussed on technical departures from the rules and not the actual consequences of those departures.

    The Section 20 issue for freeholders was very similar until the recent Daejan Investments Limited v Benson & others case. Prior to that ruling, the Leasehold Advisory Service were even issuing leaflets explaining how leaseholders could get away without paying for works if the landlord had deviated even slightly from the prescribed process.

    Since the ruling, claimants now need to show they have been prejudiced in some way and that an innocent departure from the rules no longer gives an automatic penalty.

    Shouldn’t it be the same for tenancy deposits? Where is the reasonableness and common sense in the current situation?

    The 3 x penalty should be given to the state so that tenants are no longer the beneficiaries. Alternatively, just get rid of the penalty and rely on the landlord being unable to hold from the deposit or serve a section 21 unless the deposit is protected or repaid in full.

  4. The simple facts of the case are these:

    1)Landlord served a Section 21 notice
    2)Tenant didn’t want to leave
    3)Tenant used technicality of non-protection of the deposit to invalidate the notice.
    4)The case had absolutely nothing to do with the tenant being prejudiced or suffering financial loss in some way due to non-protection of the deposit.

  5. I don’t think anyone in the parliamentary drafting section has really thought it out properly -it is a difficult piece of legislation to do.

    Last time it was massively unfair on tenants as landlords could protect at the doors of the court and they would lose their claim.

    Now it seems to be massively unfair on landlords.

    And of course everytime the legislation gets amended in a ‘patchwork’ manner it gets more difficult to understand as you have to keep cross referencing everything.

  6. Tessa, the DPS does in fact make reference to this in its website. In it’s FAQ section it states, “A deposit will remain secured until a joint deposit repayment is made by the agent/landlord and tenant(s). Therefore, there is no action required at the end of the initial tenancy”.

  7. Thanks for that Mike – I only looked at the t&c.

    @Peter – thats a very good point. Worrying.

    Thank you everyone for your comments. Its all a right buggers muddle isn’t it?

  8. I agree that schemes’ T&Cs are crucial with respect to any requirement to re-protect the deposit.

    “The periodic tenancy which arises under s5 of the Housing Act 1988 at the end of a fixed term where the tenant stays on, is in fact a new tenancy”

    Anyone, not only lawyers, who ever bothered to read s.5 was well aware of that, and the court quickly dealt with the argument to the contrary.

  9. Thanks for a very useful post, I know now to avoid Capita for deposit protection as there T&C has this trap.

  10. Peter, I don’t think that this implies as you seem to suggest that the landlord forfeits any claim for breaches related to the initial tenancy.
    But it does seem to imply that if at a later time the landlord wishes to claim for any breach related to the initial tenancy he won’t able to do so on the deposit since he no longer holds a deposit for that tenancy.

    Also note that a periodic tenancy does not end with every period, it continues from period to period: As such inspection and re-reprotection would not be needed e.g. monthly, which would be bonkers.

  11. Romain.sorry for my lack of clarity. I didn’t mean that the right to claim would be forfeit but as you clarified, if you hand back the deposit and reprotect it without carrying out an inspection and making a claim on the deposit then you would be accepting that no damage had been done during the ast and you would no longer have a deposit in place against which you could claim because the damage was in place at the time that the deposit was reprotected in full.

    The monthly weekly reprotection was merely a tongue in cheek extrapolation of how things are progressing.

    Perhaps the judge was trying to encourage the use of longer AST’s so we have 5years before falling foul of this latest twist in the law?

  12. The landlord is not obligated to make a claim on the deposit in any case, and as such accepting that the deposit be carried forward to a new tenancy is not in principle accepting that no breach/damage occurred, IMHO (that’s the point I was trying to make).

    Considering that hopefully an inspection is carried out when the tenant first moves in, and another one when the tenant leaves, then I think that in practice it doesn’t matter whether several tenancies exist in between, and whether the deposit is re-protected several times: Any damage occurring between move in and move out is the tenant’s responsibility.
    I think that this is accepted by both the courts and the deposit schemes’ adjudicators.

    The question in my view is then whether the landlord can claim on the deposit now being held in relation to tenancy B with regard to breaches that occurred during tenancy A.
    If not the only option is to go to court (should no agreement be reached with tenant).
    It might not be easy to assert when damage occurred, but e.g. rent arrears would very clearly belong to a specific tenancy.
    Currently I’m not aware of courts/adjudicators considering this when granting deduction to deposits, but it might change now…

  13. romain. you may well be right but we ‘lost’our claim for this reason, ie damage happened before the current tenancy. even though it was same tenant in occupation. However it was via small claims court arbitration service where the arbitrator advised we would lose if we didn’t roll over and instead chose to go to court. Guess we were advised poorly. Thanks for clearing up that point.

  14. Thanks Tessa for another great article.

    With regards to your quote “S213(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of [30] days beginning with the date on which it is received.”

    We have asked DPS on a number of occasions exactly what is required by us to remain fully compliant with their scheme. eg if prescribed information has to be served each time a deposit top up is added, in light of the having to also provide a tenant guide ruling etc. On every occasion the verbal and written response is if we are not sure then we should seek our own legal advice.

    Why is no-one challenging the fact that such large penalties exist for non compliance with a process, yet the schemes refuse to confirm what the process should be?

  15. I suppose the thought that springs to mind is that no-one really knows or understands how these regulations will work out if challenged in the courts and so they do not want to potentially incur liability by expressing an opinion.

    Its a sorry state of affairs.

  16. Just one comment here, I am not convinced the prescribed information provided on move is valid (and I have been warning of this Superstrike judgement for some years!)

    The reason lies in the wording and the facts. Firstly the wording. As you quoted above teh relevant part is “(6) The information required by subsection (5) must be given to the tenant and any relevant person—

    (a) in the prescribed form or in a form substantially to the same effect, and
    (b) within the period of 30 days beginning with the date on which the deposit is received by the landlord.”

    Not the 30 days begins with the date on which it is received. If you served it 6 months ago did you “give” it to them between the date of receipt and a date 30 days later, surely the answer has to be no?

    Secondly, is it not fair to say the prescribed information may well have changed? The tenant in the original prescribed information might be listed at their previous address whereas now they are Mr Smith of Your Property Address. The scheme leaflet may have changed or indeed any other information. The only safe option till it is resolved by a court or change in the law is to serve new prescribed information.

    I am sorry there are so many problems out there but I hope people begin (and so far it is only begin) to understand the seriousness of the localism act changes. I said it last year and actually this is good news as better the market woke up and found they were doing it wrong after 15 months than 6 years when there would have been a lot more statutory periodic tenancies been done wrong.

  17. All this goes to show that even after tinkering this legislation remains a dog’s breakfast. The different rules of the different deposit takers/guarantors make it unworkable. The same nonsense is perpetuated where there is a judgment (eg in a possession) and the deposit takers will not release funds against the judgment unless it specifically refers to the deposit. There needs to be one set of rules that are in the real world.



About the post author:

Tessa Shepperson

Tessa is a lawyer and specialises in creating products and services which help landlords and letting agents learn and understand landlord & tenant law. For example, she runs the Landlord Law website (now in its 14th year) and is a director of Easy Law Training Ltd and Your Law Store. Tessa also sits on the Property Redress Scheme Council. When not working she enjoys reading, cooking and messing around on the computer. You can also find her on Google

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Tessa is an English lawyer specialising in residential landlord and tenant law.

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