Charalambous and another v Ng and another [2014] EWCA Civ 1604

The courts continue to produce surprising decisions in relation to the tenancy deposit scheme introduced by the Housing Act 2004, applying it in certain respects to tenancies granted before it came into force, on 6 April 2007.  Superstrike Limited v Rodrigues [2013] EWCA Civ 669 held that where a pre-April 2007 AST converted to a statutory periodic tenancy after that date, a deposit already held by the landlord had to be protected within the scheme.  Now the Court of Appeal has gone one further, and held that a section 21 possession notice served by a landlord will not be valid if the deposit is not held within the scheme, even if both the payment of the deposit and the conversion to a statutory periodic tenancy took place before April 2007.

In this case, the tenants paid their deposit of £1560 in 2002, almost 5 years before sections 212-215 of the Housing Act 2004 came into force.  The tenancy was renewed twice before coming to an end on 17 August 2005, at which point a statutory periodic tenancy arose under the Housing Act 1988.  In October 2012, the landlord served notice under section 21 of the 1988 Act, requiring the tenants to give possession.  However, the tenants claimed that the notice was not valid, as their deposit had never been held under a statutory scheme.

Section 215(1)(a) of the 2004 Act states that no section 21 notice can be given at a time when ”the deposit is not being held in accordance with an authorised scheme”.  Since that provision is expressed in the present tense, the Court was of the opinion that the position should be judged as at the date of the hearing.  The Court rejected the suggestion that finding in favour of the tenants would give the 2004 Act retrospective effect.  It held that the wording in section 215(1)(a) is only concerned with section 21 notices served after it came into force, and it is therefore prospective in operation rather than retrospective.

The implication is that regardless of whether a deposit was paid before the 2004 Act came into force, the landlord will not be able to serve a section 21 notice if the deposit is not held in accordance with an authorised scheme.  A landlord in that position would need to pay the deposit back to the tenants in order to be able to serve notice.  This will particularly affect landlords with long term tenants, who will not have appreciated that the scheme applies to the deposits they hold.

It should also be noted that clause 30 of the Deregulation Bill which is currently progressing through Parliament addresses some practicalities arising out of the Superstrike decision.  That means there is  an opportunity available to take account of this decision too, though Parliament may consider the decision will achieve a desirable result, with all deposits now likely to be protected.