The 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  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.
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.