Charalambous and Karali v Ng (2014): another Court of Appeal TDS decision

Following a decision of the Court of Appeal in December 2014, any Landlord of a residential property who has previously received a tenant's deposit and who wishes to serve a section 21 notice must comply with the provisions of section 215 Housing Act 2004, even if the deposit was received by the Landlord in relation to a tenancy which existed prior the coming into force of Housing Act 2004.

In Charalambous and Karali v Ng (2014), the tenants entered into an assured shorthold tenancy for a property in Spitalfields for a period of 1 year minus 1 day, commencing on 20 August 2002 and expiring on 18 August 2003. The tenants paid a deposit of £1560 to the Landlords prior to the commencement of the tenancy. 

The tenancy was renewed for the same period on 19 August 2003 and again on 18 August 2004.  On each occasion the deposit paid prior to the 2002 tenancy was 'paid' to the Landlord, albeit no further monies changed hands, instead the initial deposit simply being carried over.

When the 2004 renewal tenancy expired on 17 August 2005, a statutory periodic tenancy commenced. The deposit remained with the landlady. At no time was the deposit protected with an authorised tenancy deposit scheme.

On 17 October 2012, the landlady served a section 21 notice upon the tenants. The tenants challenged the validity of the notice on the basis of non-compliance with the tenancy deposit scheme provisions of the Housing Act 2004.  At first instance, DJ Manners sitting in the Clerkenwell & Shoreditch County Court held that the notice was valid. The tenants successfully appealed to the Court of Appeal which determined that the section 21 notice was invalid.

Unlike in Superstrike (Tenancy Deposit Scheme - Tenant Strikes Out), in Charalambous the periodic tenancy existing as at the time of the section 21 notice being served was created a number of years before the Tenancy Deposit Scheme came into existence. The landlady argued that she could not (and did not need to) have complied with Section 213(3) Housing Act 2004 (which requires a deposit to be protected and for prescribed information to be provided by the landlord to the tenant) because the deposit had been received many years before any duty to satisfy Section 213(3) had arisen.

Giving the sole judgment (with which King LJ and Black LJ agreed), Lewison LJ held that the Housing Act 2004 was not retrospective. At the time the deposit was paid there was no obligation upon the landlady to secure the deposit or provide prescribed information to the tenants and as such the landlady would not face financial sanction for failure to comply with Section 213 of Housing Act 2004.  

However, Lewison LJ found that the wording of Section 215 meant that it applied to all section 21 notices served after Housing Act 2004 came into force.

Section 215 of the Housing Act 2004 provides (my emphasis in bold)

  1. [Subject to subsection (2A), if] a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when:

            (a)        the deposit is not being held in accordance with an authorised scheme, or 

            (b)        section 213(3) has not been complied with in relation to the deposit.

As at the time of the service of the section 21 notice, the landlady was in receipt of a deposit from the tenants but had not deposited it with an authorised scheme. Section 215(1)(a) Housing Act 2004 had therefore not been satisfied. As such, the Court of Appeal held that the section 21 notice was invalid.

Lewison LJ stated that there was "no real hardship to landlords" arising from this interpretation of the Section 215(1)(a), opining that the landlady in this instance (and it therefore follows any landlord in the same position) could at any time have paid the deposit into an authorised scheme or, if for any reason that was not possible, could simply have returned the deposit to the tenants, at which time she could have validly served a section 21 notice.

It is unclear just how many Landlords the decision will affect. One thing is clear, however: Landlords of properties let under assured shorthold tenancies who are in receipt of a tenant's deposit and who wish to rely upon section 21 to recover possession must ensure that prior to serving the section notice they have either secured the deposit in an authorised tenants deposit scheme or, alternatively, return the deposit to the tenant.

Posted on: 15/01/2015

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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