Court of Appeal Ruling Could Affect Many Landlords

There could be major legal consequences for landlords due to a Court of Appeals decision. Many landlords could now face legal action from tenants because of an unwitting breach of the law on tenancy deposit protection.

The ruling happened last Friday in Superstrike Ltd v Marino Rodrigues. The assured shorthold tenancy began in January 2007 for a fixed term of one year less a day. The tenant paid a deposit that was equal to the monthly rent – £606.66. When the fixed term expired, which was after tenancy deposit law became mandatory on 6 April 2007, under the Housing Act 1988 the tenant became entitled to a statutory periodic tenancy on equivalent terms. No new tenancy agreement was signed and the rent did not change. Crucially, the landlord continued to hold on to the deposit.

On 22 June 2011, the landlord served the tenant with a Section 21 notice. The landlord was granted possession, but this was challenged on the grounds that the landlord had not complied with the rules on tenancy deposit protection. The landlord then appealed.

The Court of Appeals ruled on Friday that the landlord should have protected the deposit in one of the government schemes as the creation of the statutory periodic tenancy, under the Housing Act, came after 6 April 2007, meaning that the landlord was bound by law to protect the deposit. Therefore, the landlord was held not to have been entitled to have served a Section 21 notice and was not entitled to possession.

What this means is that, in the eyes of the law, a statutory periodic tenancy is not a continuation of a fixed term tenancy, but is, in fact, a new tenancy. This suggests that it is necessary to re-protect the deposit paid by the tenant each time a fixed term tenancy ends, and within 30 days of the “new” statutory periodic tenancy beginning.

While this might be fairly straightforward for current fixed term tenancies, landlords and letting agents are faced with the fact that many of them with ongoing tenancies will not have re-protected deposits, nor given the tenants a new deposit protection certificate as well as the proscribed information. It would seem unnecessary to many, given that the tenancy has continued, but the ruling is clear.

The full implications of the case have yet to be determined, and is being studied carefully by lawyers, and by tenancy deposit schemes whose rules may have to be re-written in order to agree with the law.

The advice from My Deposits prior to the ruling was that there was no need for new protection when transitioning a tenancy from fixed term to statutory periodic. Other schemes simply required that they were to be informed.

This judgement has potentially opened the floodgates for tenants to make legal claims against their landlord if their fixed term tenancy rolled over into a statutory periodic tenancy and did not have their deposit re-protected. According to the Statute of Limitation, tenants can make claims against landlords stretching back six years, in which tenants could argue that any eviction was unlawful, and could even claim back their original deposit plus a penalty. The number of potential claims is vast.

Although the implications of the ruling are pretty grim, there is a chance an appeal could be brought before the Supreme Court, where gaping legal loopholes could be closed, thus saving landlords from dealing with tenants looking to exploit a technicality.

In the meantime, all a landlord can do is to be sure to re-register all tenancy deposits at the end of the fixed period of the tenancy in order to be in compliance with Section 215 of the Housing Act 2004. Failure to do so would result in the invalidity of any Section 21 notice served.

If, as in the case of Superstrike Ltd v Marino Rodrigues, the deposit was registered at the start of the fixed term before 6 April 2007, but the periodic tenancy began after that date, then the deposit must be re-registered.

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