The Court of Appeal yesterday handed down judgement in Charalambous & Anor v Ng. This case is very important and will come a s suprise to many landlords as it changes the understanding in relation to deposits taken before April 2007. 

After the decision in Superstrike it was clear that a deposit taken before the legislation came into force would defiuntiely have to be protected if the deposit was renewed or the tenancy became periodic after the legislaiton came into force. However, Superstrike said nothing about the situation where a deposit was taken before the legislatin came into force and the tenancy then became (and remained) a statutory periodic tenancy before that date. As there was no receipt of the deposit durign the period that the protection legislation was in force the obligation to protect under s213, Housing Act 2004 could not arise and the penalties under s214 could not be levied.

To some extent the Court fo Appeal agreed with that analysis. A deposit taken before the intorudction of the legislation where the tenancy has become and remains a statutory periodic one does not fall within s213 and does not have to be protected. No financial penalty can be sought by a tenant for a landlord not protecting a deposit in this situation.

However, there are further penalties under s215. These prevent a landlord serving an s21 notice in a situation where the deposit is not protected. In the past there has been a bit of a presumption that if the obligation under s213 did not apply then the penalties under s215 could not apply. The Court of Appeal held this to be wrong. S215 means that a s21 notice cannot be validly served at any stage where a deposit is not protected, irrespective of when that deposit was in fact taken.

Consequences of This Decision

The simple upshot of this decision is that where a deposit has been taken prior to the introdution of the deposit protection regime and has become and emained as a statutory periodic tenancy before the legislation came into force (ie. before 6 April 2007) there is no direct obligation on the landlord to protect the deposit and no financial penalties can be sought by the tenant for not doing so. However, if a depisit is not protected no s21 can be served until it has been or the deposit has been returned to the tenant.

Advice for Landlords and Agents

Landords and agenst with tenancies htat became statutory periodic before the deposit legislation came into force have been fairly relaxed until now. They will not be able to continue this way. It will now be necessary to deal with these deposits. If the deposit was protected at the time the Localism Act changes came into force then there is no need to worry. If the deposit remains unprotected today then the safest course is to return it to the tenant, service of a valid s21 notice wil then be possible. The second option is to protect the deposit late. The Court of Appeal did not rule that this would suffice but gave an indication that they thought it probably would so this course is slightly riskier. To repeat, there is no right for a tenant to make a financial claim on the landlord in this situation.

Deregulation

As it currently stands the changes being produced by the Deregulation Bill will not resolve this situation. The Government may elect to make a late chnage or it may do nothing on the basis that there is a relatively easy fix for landlords to follow. One advantage of this decision is that it will act to regularise the position in that all tenancy deposits in respect of ASTs should now be protected.