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Uncertainty Over Court of Appeal Ruling

June 25, 2013 | Company News   Landlord News  

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Much online debate has ensued in the wake of the Court of Appeal ruling in the Superstrike v Rodrigues case, wherein it was ruled that the landlord should have protected the deposit of the tenant after a fixed term tenancy had rolled over into periodic tenancy. The fixed term tenancy began before deposit protection became mandatory (on 6 April 2007), but became a periodic tenancy after it had been made mandatory. The Court deemed it not a continuation of the tenancy, but rather, a new tenancy. Therefore, the Section 21 notice served by the landlord was not valid.

The potential legal consequences of the ruling have been discussed at length by lawyers and landlords, but some feel that the case must go to the Supreme Court to settle once and for all just what the outcome for landlords will be.

MyDeposits, DPS and TDS issued a joint statement last week. They said, “Whilst landlords and lettings agents take their own legal advice, we will be considering the implications of this judgement for deposit protection and the service of prescribed information.

“We will also need to consult the DCLG on this and we will be issuing a further joint statement when we have fully considered the matter.”

Justin Selig, solicitor and director at Landlord Action, is one of the voices calling for the case to be taken to the Supreme Court. He is of the opinion that the case has implications for every landlord and agent whose tenant occupies a property under an Assured Shorthold Tenancy and where a deposit has been taken.

Selig said, “The question is, where you are holding a protected deposit, do you need to re-protect it each time there is a renewal of a tenancy? At present, I think the answer to that is, yes.

“There is a further problem. A periodic tenancy is deemed to be renewed at the expiry of each period.

“Therefore, if you follow the argument – this would mean that the deposit would need to be re-protected at the beginning of each period. Most periodic tenancies are monthly – so the deposit would need to be re-protected monthly.

“Obviously this does not make sense, nor I am sure is this the intention of the legislation.”

He gave the following advice: “The first thing I would do is to obtain written clarification from the deposit protection company you are using as to their take on the ruling, and comply with their recommendations.

“Secondly, as a minimum, and you have a fixed term tenancy about to go on to a periodic, you should at least protect your deposit again when it goes periodic. (Personally, I would actually return the deposit to the tenant – but I appreciate that this is not always practical.)

“Thirdly, and for belt and braces protection – where you are still holding the deposit, you may want to consider not allowing the tenancy to go on to periodic, but to reissue the tenant with a new fixed term – and re-protecting the deposit for that fixed term.”

Not everyone agrees with this assessment of the situation, however. Several industry figures have suggested that deposits will not likely need re-protecting at periodic stages, but that the tenant need only be issued a fresh set of the prescribed information.

The NLA went further, releasing a statement to their members in which they called for calm. Having discussed the case with legal professionals and officials responsible for TDS and legislation within the Department for Communities and Local Government (DCLG), they concluded that the precedent set by the ruling is applicable only to cases subject to the same set of circumstances, rather than a broad brush stroke that affects all landlords.

They believe that the ruling does not apply to any deposits taken after 6 April 2007, nor even does the ruling deal with the need to supply prescribed information to the tenant. The focus of the case was a to ascertain the validity of a particular Section 21 notice issued under a particular set of circumstances. Therefore, in their view, few tenancies should be affected by the case.

In an NLA and UKALA press release, Richard Lambert, CEO of the NLA, said, “It is understandable that landlords are concerned about this case, and the potential impact it could have on those who find that they have unintentionally failed to comply with tenancy deposit protection legislation as a result of Lord Justice Lloyd’s ruling.

“However, they must remember that this judgement only applies to a very specific set of circumstances, meaning that most landlords will be unaffected.

“Although it is likely to affect relatively few tenancies, the NLA’s real concern in this matter is that, once again, professional landlords, following government guidance on how to comply with the law, have been caught out by the unintended consequences of the Housing Act 2004.

“The Government must act swiftly to reassure the industry that law-abiding landlords will not face sanctions as a result of this new interpretation of the rules.

“We’ve written to the Housing Minister calling on him to take urgent action to re-assert the spirit of the law on tenancy deposit protection and restore fairness to the system which was designed to ensure it.”

Caroline Kenny, UKALA Chief Executive, said, “UKALA is troubled that once again tenancy deposit protection rules appear to have been thrown into disarray by the Court of Appeal.

“Landlords and their agents simply trying to understand and comply with the law will be rightly disillusioned by yet another reconsideration of ‘the right way to protect a deposit’.

“We hope to see this matter taken to the Supreme Court so that clarity can be achieved once and for all.

“In the meantime, the industry is in desperate need of guidance from the Government about how to treat affected deposits.”

In stark contrast, law firm Barlow Robbins say that the case does indeed raise issues for tenancies created since 2007. Solicitor Luke Maunder has also expressed the opinion that landlords will face potential financial penalties as a result of precedent set by the case.

ARLA are currently reviewing the case, and have advised members to re-issue prescribed information each time a fixed term tenancy becomes periodic.

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