Tenancy Deposits Registration The case of Gardner v McCusker1 is the latest decision to address the scope of the rules regulating the registration of residential tenancy deposits for assured shorthold tenancies (AST).
The decision is significant in confirming what steps landlords are required to take to ensure tenancy deposits are properly registered when a tenant remains in occupation of a property after the initial fixed term AST expires.
In Gardner, the court applied the decision made by the Court of Appeal last year in Superstrike Ltd v Rodrigues2 , in which it was held that a tenancy deposit paid by a tenant in relation to an AST entered into before the tenancy deposit registration rules came into force on 6 April 2007 is required to be registered if the initial fixed term tenancy expires and the tenant remains in occupation.
The court in Gardner directly applied the Superstrike decision and held that the requirement to comply with the tenancy deposit registrations rules will apply equally to ASTs that were entered into after 6 April 2007, even if the tenancy deposit was already registered at the outset of the fixed term AST.
As most AST tenancies are entered into for an initial fixed term period of six months only, the vast majority of current ASTs will have arisen after 6 April 2007. The effect of the Gardner decision effectively increases the burden on residential landlords to ensure they comply properly with registration requirements both at the outset of an AST and after the fixed term expires if the tenant remains in occupation. A failure to do so will risk delays in recovering possession of residential properties and a potential liability to pay compensation to existing tenants.
Residential Tenancy Deposits: Current Registration Rules
Since 6 April 2007, landlords of AST tenants have been under a strict obligation to register a deposit paid by a tenant on the commencement of a new tenancy with a designated tenancy deposit scheme (TDS).
The registration requirements imposed on a landlord under Sections 213 – 215 of the Housing Act 2004 are threefold:
- to register a tenancy deposit received from an AST tenant with a TDS within 30 days of receipt;
- to serve upon tenant certain prescribed information confirming the registration details for the deposit, within the same 30 day period after receipt of the deposit; and
- to comply with the initial requirements of the particular TDS used.
If a landlord fails to comply with any or all of these requirements, they may face potential penalties including:
- being prevented from relying on a notice served under section 21 of the Housing Act 1988 requiring possession of the property; and
- a right for the tenant to bring a claim requiring the landlord to register the deposit or repay it to the tenant and seek compensation of up to three times the amount of the deposit as compensation for the landlord’s failure to comply with the registration rules.
What Happens When the Fixed Term Tenancy Ends?
Although there is no minimum term for an AST, most tenancies are entered into for an initial fixed term of six months. After the fixed term ends, a tenant has right to remain in occupation of the property unless the landlord takes steps to recover possession.
The question facing the court in Superstrike and Gardner was: what steps is a landlord required to take in relation to a tenancy deposit when the initial fixed term of an AST expires and the tenant remains in occupation of the property?
(i) Pre- 6 April 2007 Tenancies – Superstrike
In Superstrike, the original fixed term AST had been entered into before the tenancy deposit registration rules came into force on 6 April 2007. Therefore, there had been no requirement for the landlord to register the deposit received from the tenant at the outset of the tenancy.
The tenant stayed in occupation after the initial fixed term expired (after 6 April 2007) and argued that upon expiry of the fixed term a new statutory periodic tenancy arose, which triggered the tenancy deposit registration rules.
The Court of Appeal agreed and confirmed that where a fixed term AST expires and a tenant remains in occupation, a new statutory periodic tenancy is deemed to arise and the landlord is at that point required to comply with the rules governing registration tenancy deposits.
(ii) Post 6 April 2007 Tenancies – Gardner v McCusker
In the case of Gardner v McCusker, the court was faced with the question whether the same rule applied to an AST tenancy that had been entered into after the deposit protection rules had come into force on 6 April 2007 and where the deposit had already been properly registered when the tenancy first began.
In reaching his decision, Deputy District Judge Davies directly applied the decision in Superstrike and determined that when the original fixed term expired, a new tenancy had come into being which included an obligation on the tenant to pay a deposit. As a result, the court held that the landlord was required to comply with the tenancy deposit registration requirements in relation to the new tenancy.
In this case, the landlord was not able to demonstrate that it had done so and as a result was unable to rely on the s.21 notice served to recover possession of the property and was ordered to pay compensation to the tenant in the sum of 2 times the amount of the tenancy deposit.
Getting Registration Right
As a result of the Gardner decision, all landlords of AST tenants are required to comply with the deposit registration rules set out Sections 213 – 215 of the Housing Act 1988 when the new tenancy arises upon expiry of the original fixed term, even where the deposit has already previously been registered.
The court made no distinction in this case for the fact that the landlord had complied with the requirements to properly register the deposit when it had first been paid at the outset of the original fixed term AST.
In practical terms, in cases where a tenant remains in occupation following expiry of the initial fixed term, although there is unlikely to be any new financial transaction in respect of the receipt of the deposit, the landlord is required to make the necessary arrangements for the deposit to be registered with a TDS and serve the prescribed information on the tenant within 30 days of the end of the expiry of the fixed term tenancy.
The decision in Gardner is unlikely to be welcomed by many private residential landlords, particularly those with large tenant portfolios, and will raise concerns that the requirements placed on landlords of complying with the tenancy deposit rules have become disproportionately onerous.
Current proposals to reform the rules governing registration of residential tenancy deposits have been set out in a draft parliamentary Bill which, if enacted, would remove the requirement for a landlord to re-register a deposit when a new statutory periodic tenancy arises. However, no timeframe for consideration of the Bill has been confirmed and there is no guarantee that such proposals will be brought into force.
For now at least, landlords need to be on the ball and make sure they monitor their tenancy portfolios carefully to ensure that registration requirements are complied with fully both at the start of a fixed term AST and, crucially, at the end as well.