Tenancy Deposit Scheme - Landlord strikes out

In the recent case of Superstrike v Rodrigues (2013), the Court of Appeal handed down judgment on the dispute concerning the Tenancy Deposit Scheme that should be of particular interest to landlords who received deposits for fixed term Assured Shorthold Tenancies entered into before April 2007 and where the tenant remains in occupation today.

in January 2007, Rodrigues took an assured shorthold tenancy from Superstrike Limited for a term of one year less one day at a monthly rent of £606.66, the terms of that tenancy being governed by a written tenancy agreement dated 8 January 2007. Rodrigues paid a deposit of £606.66.

At the expiry of the fixed term, Rodrigues remained in occupation. As is often the case, no new tenancy agreement was entered into, rather by virtue of Section 5 Housing Act 1988, a monthly statutory periodic tenancy came into being.

On 22 June 2011, Superstrike Limited served a Section 21 Notice requiring Rodrigues to provide vacant possession upon the expiry of the notice. Rodrigues failed to vacate the property on the expiry of the notice and possession proceedings were issued by Superstrike Limited.   

A Possession Order was made in favour of Superstrike Limited on 8 May 2012. That Order was set aside on 26 June 21012 on the grounds of non-compliance with the provisions of Housing Act 2004 as regards tenant's deposits.  Superstrike Limited's appeal against the order setting aside the Possession order was allowed.  Rodrigues appealed that decision.

In a unanimous verdict, the Court of Appeal allowed Rodrigues' appeal, holding that Superstrike Limited had failed to protect Rodrigues' deposit as required by Housing Act 2004. It followed that Superstrike Limited was not entitled to possession. 

The key question that the Court of Appeal had to answer in this instance was: given that the deposit was paid to Superstrike Limited Rodrigues prior to Housing Act 2004 coming into force, was there any obligation on Superstrike Limited to protect the deposit when the fixed term expired and the statutory periodic tenancy is created, bearing in mind that as at that time (January 2008), the Housing 2004 was in force.

In coming to its decision that the deposit should have been protected, the Court of Appeal highlighted that a statutory periodic tenancy is a new and distinct tenancy, entirely separate from the fixed term tenancy, albeit on the same general terms governing the parties rights and obligations

In the course of giving the leading judgment, Lord Justice Lloyd noted that Section 213(1) Housing Act 2004 states:-

"Any tenancy deposit paid to a person on connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme"

Superstrike Limited claimed that that deposit was "paid" and "received" in January 2007, before the Housing Act 2004 came into force, and therefore was of no effect.

The Court of Appeal , however, agreed with Rodrigues that when the statutory periodic tenancy came into being on 8 January 2008, the deposit, which Superstrike Limited had retained following the expiry of the fixed term, had to be regarded as having been "paid" and "received" in respect of the new statutory periodic tenancy on the date the periodic tenancy was created, despite no money physically changing hands on that date. 

That being the case, Superstrike Limited was obliged to protect the deposit in an approved scheme. It did not do so. By virtue of Section 215(1) Housing Act 2004, Superstrike Limited was not entitled to serve a section 21 notice.  The Court of Appeal held that it therefore followed that the notice Superstrike Limited gave to Rodriguez on 22 June 2011 was ineffective, the grounds for possession were not made out and consequently, the possession ought not to have been made.

A final point….

In the course of concluding his judgment, Lord Justice Lloyd noted that that the sanction preventing service of a section 21 notice applies until the prescribed information (specific information which a Landlord is required to provide to a Tenant about the deposit) is given, even if that information is provided late.  Lord Justice Lloyd highlighted that it does not appear possible to remedy a failure to protect the deposit with an authorised scheme, the implication being (Lord Justice Lloyd was at pains to stress he was not deciding this to be so) that the only way a Landlord can escape the sanction preventing service of a section 21 when a deposit has not been protected is to return the deposit.

Rollits' Property Dispute Resolution Team, headed by partner Ralph Gilbert, has a wealth of experience in assisting residential Landlords in not only resolving problems that may arise from their legal duties and obligations but also providing proactive advice to minimise the risk of any issues arising in the first place. If you have any contentious property related queries, whether in relation to the Tenancy Deposit Scheme or otherwise, please contact Ralph Gilbert, partner and Head of the Property Dispute Resolution Group on 01482 323239 or at ralph.gilbert@rollits.com.

Posted on: 19/06/2013

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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