The Court of Appeal has today handed down another useful decision on tenancy deposit protection which clarifies the position on deposits taken before the legislation came into effect in 2007.
In Superstrike Ltd v Rodrigues the landlord let the premises in January 2007 for a year. In other words, before the deposit legislation came into effect. The tenancy became a periodic tenancy in January 2008 (after the legislation came into effect) and continued as a periodic tenancy. A section 21 notice was served in June 2011 and possession proceedings were taken out in mid-2012. The tenant defended those proceedings on the basis that the deposit was not properly protected.
The issues before the Court were therefore relatively simple.
- Was there a new tenancy arising in January 2008 when the original tenancy became periodic? and
- Did that new tenancy give rise to an obligation to protect the deposit?
The first question was dealt with very quickly. The statutory periodic tenancy which arose in January 2008 was a new tenancy. The Housing Act 1988 describes statutory periodic tenancies in a way that leads to that conclusion that they are totally new tenancies, albeit on the same terms and conditions and there is also previous case law which supports this view.
The second question was more difficult. The Housing Act 2004 requires that tenancy deposits are protected on receipt. Therefore the trigger is not so much a new tenancy but rather the receipt of a deposit. The landlord argued that this meant “physically received” while the tenant argued that the meaning was a wider one and included receipt by way of transfer of effect of the deposit from one tenancy to another. The Court preferred the tenant’s argument because there had to be a legal mechanism by which the tenant’s deposit moved from one tenancy to another. This occurred by way of a set off of the old deposit as against a demand for payment for a new deposit. This movement of the purpose of the money amounted to a payment and so there must have been a consequential receipt. This receipt then triggered the deposit protection obligation.
This clears up another key issue although arguably one that was no longer relevant since the introduction of the Localism Act changes. However, this case did leave another point open and further highlight another issue. In the Localism Act commencement order it is stated that the amended deposit protection regime introduced there applies to all deposits held for ASTs in effect on or after the commencement date. This was not an argument raised before the Court of Appeal and so it remains an open question. It would however now only be relevant to tenancies that were periodic before the advent of the legislation in April 2007 and have continued that way since or tenancies which became ASTs at some point after 2007 (as a consequence of the increase in the maximum rent threshold for example) so it is not likely to involve a lot of tenancies. The decision in this case will sweep up most other cases.
The other issue raised is more concerning. If a periodic tenancy requires protection as it is a new receipt then it should also require the second key obligation to be fulfilled, that is service of the prescribed information. This would seem to suggest that the prescribed information should be served again whenever a tenancy becomes periodic or is renewed. This is contrary to the current position of most advisors. As against this, 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.
Despite it being a good thing that this issue has been cleared up it remains the case that there have been far too many trips to the senior courts on what was meant to be a relatively simple piece of legislation which would remove deposit disputes from the County Courts to scheme provided ADR. While these disputes have indeed largely left the Courts I am quite sure that it was not the intention to replace them with disputes over the meaning of the protection legislation. Given the enormous expense of High Court and Court of Appeal cases the failure to produce good quality legislation in this area which is clear and explicit about obligations has likely ended up costing as much as doing nothing at all. Hopefully, this will be an experience that will be noted when Government is considering other legislation to regulate the sector.