The effects of Superstrike on the Tenancy Deposit Regulations.
In the recently decided case of Superstrike Limited v Marino Rodrigues the Court of appeal has had to consider whether the procedures for registration of deposits applies to statutory periodic tenancies automatically arising after expiry of an earlier fixed term tenancy.
Background to the Tenancy Deposit Regulations
The Housing Act 2004 introduced tenancy deposit protection for all assured shorthold tenancies in England and Wales, where a deposit is taken. This came in to force on 6 April 2007. The Regulations have recently been amended by the Localism Bill 2011 and the procedure is that where a deposit is taken from a tenant, this must be protected by the landlord in accordance with the Regulations and the period for doing so has now been increased from 14 days of receipt of the deposit to 30 days. Certain prescribed information must be given to the tenant by the landlord and if the requirements are not satisfied the Court may order the landlord to return the deposit to the tenant or order the landlord to pay the deposit into the relevant scheme within 14 days. In addition the Court must order that the landlord pay the tenant a sum of money equal to 3 times the amount of the deposit.
One of the important elements of the Regulations is that if they are not complied with by the landlord, the landlord is not able to serve a Section 21 Notice until the deposit has been placed in a relevant scheme.
The facts in Superstrike Limited v Marino Rodrigues
The tenant occupied a property under an assured shorthold tenancy which was created on 8 January 2007 and fixed for a term of one year less one day. The tenant paid a deposit to the landlord and when the fixed term of the tenancy expired, remained in occupation.
In this situation, a new tenancy is created, being a statutory periodic tenancy which runs on broadly the same terms as the fixed term tenancy.
The tenant continued to occupy the property and pay rent without objection from the landlord but on 22 June 2011 the landlord served a Notice under Section 21 of the Housing Act 1988.
The landlord sought possession by applying to the Court, which claim was dismissed because the Court was of the opinion that the deposit should have been placed in a relevant scheme and by failing to do so, the Section 21 Notice upon which the claim was founded was invalid.
The landlord appealed ultimately to the Court of Appeal.
The Decision
The tenant argued in the Court of Appeal that when the original fixed term tenancy came to an end on 7 January 2008, a new statutory periodic tenancy was created and the landlord was holding a deposit in respect of that tenancy and accordingly should have paid the deposit into a relevant scheme within the required period.
The landlord's argument was that as the deposit had been paid before the introduction of the Regulations, that they did not apply and the deposit did not have to be protected.
It was accepted by the Court that the deposit paid in respect of the original tenancy was not subject to the Regulations but it accepted the arguments raised by the tenant.
In summary, the Court found that the landlord should have protected the deposit after the new statutory period tenancy was created and as a result of the landlord's failure to do so, the Section 21 Notice which was served was invalid.
Implications of Superstike Decision
It is safe to say that it is now clear that where a deposit is taken in respect of assured shorthold tenancies that were created before the implementation of the Regulations, on expiry of the fixed term of such tenancy, the deposit should be re-registered and prescribed information given to the tenant.
For fixed term tenancies created after 6 April 2007, where a landlord may well have placed the deposit in a scheme, a fair interpretation of the case may mean that the landlord would need to register the deposit again if they allow the tenant to continue in occupation after the expiry of the fixed term. One issue that is likely to concern landlords and agents is that if you follow the argument above, where a tenancy becomes a statutory periodic tenancy, it is deemed to be renewed at the expiry of each period. Most periodic tenancies are monthly so a further interpretation of the decision may mean that the deposit would need to be re-protected monthly. This of course in practice would be very difficult and it can therefore be argued that this is surely not the intention of the Legislation nor the outcome of this case.
Until the such time as further clarification is received on the long term implications of Superstrike, landlords should be advised to contact the deposit protection company that they are using and ask for their recommendations and as an absolute minimum, where a fixed term assured shorthold tenancy expires and the tenant is allowed to remain in occupation, the landlord should protect the deposit again when the statutory periodic tenancy starts.
Alternatively, landlords may wish to consider whether it would be more favourable from their point of view to re-issue the tenant with a new fixed term on the expiry of each previous agreement and re-protecting the deposit at the beginning of each new fixed term assured shorthold tenancy.
If you have any queries regarding this article or any other landlord and tenant matter, please contact Kim Faivelowitz on 01553 660033.
