Agent registered tenancy deposit in 2009 but not since, is this a problem?

Here is a question from across the pond from John (not his real name) on behalf of a colleague

I’m an attorney in Los Angeles, California, helping out a friend here who is letting out a property in London.

Landlord recently discovered upon inspection that there were two more people living in the flat than announced and that the flat was in bad condition due to hoarding, etc. Landlord threatened to raise rent or evict.

Tenants have now come back asking whether their deposit was registered. Apparently, the estate agent did register the deposit with myDeposit in 2009 but upon raises to the rent in subsequent years did not take any further steps (to the extent any where even required) regarding the deposit.

I don’t believe that the rental agreement was changed since 2009 other than the raising of rent. I don’t know if mere raising of rent obligates the Landlord to do anymore with the deposit, or if the 2009 registration is sufficient.

Would appreciate your thoughts on that issue. I would also love your thoughts on how to proceed with tenants — my gut reaction is try to work an amicable deal at this point.

Answer

Thank you for your question and it is nice to know that this blog is read across the pond!  However I think your friend may be in difficulties.

The deposit law

Under our law all deposits need to be registered with a government authorised tenancy deposit scheme within 30 days of payment of the money.  It looks as if your friend’s agent has done this.

The law also requires that the tenants be served with a notice containing ‘prescribed information’ within 30 days also. This requirement is of equal importance.  We don’t know whether your friends agent has done this, and he should check.

The rules changed in April 2012 and all landlords were given to 6 May to regularise their situation if they were not compliant, so the prescribed information will need to have been served by that date.

However that is not the end of the story.

The Superstrike problem

We had a case in 2013, called Superstrike v. Rodrigues which threw up another problem.  Under our law, when the fixed term of a tenancy ends, a new ‘periodic’ tenancy will take its place.  (You can read about this here).

In order for the deposit money to be moved (as it were) from one tenancy to another, the deposit money is deemed paid to the tenant and then repaid back to the landlord.  Which will trigger the requirement to re-protect the deposit money and re-serve the prescribed information.

The raising of rent by the way is not the trigger, it is the ending of one type of tenancy (the fixed term) and the starting of another (another fixed term or a periodic tenancy).

So as I very much doubt that your agent will have re-served the prescribed information when the fixed term ended or before 6 May 2012 (as people were not aware of this problem then) your friend may well be deemed, at present, to be in breach of the deposit regulations.

The effect of this is that he cannot serve a valid ‘section 21 notice’ (the notice which is required to evict tenants under the ‘no fault’ procedure) unless he refunds the deposit money back to the tenants first.  Even then he will still be vulnerable to a Court claim for the penalty of between one and three times the deposit sum.

Hope on the horizon

The Superstrike case caught everyone by surprise and its effect is contrary to the governments intentions when they drew up these regulations.  I understand that they are now going to be amended and it is possible that the amendments may come into effect either in October or next April.

It looks as if, under the new regulations, landlords will be given a period of time to regularise things by arranging for the deposit to be protected and the prescribed information to be served, by a specific date, after which time the ‘Superstrike effect’ will no longer apply due to the changed wording of the regulations.

So if landlords are caught by the Superstrike problem, so long as they are able to put off any action from the tenants until the new laws come in, they should be all right.

In the meantime if your friend wants to evict the tenants he will probably have to refund the deposit money to them first.