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Tenancy Deposits – Superstrike Update

The Importance of Residential Deposits

The Deregulation Act 2015

Further to the editorial below on the Protection of Residential Deposits that was published in June 2014, the content has now been updated following The Deregulation Act receiving Royal Ascent on 29th March 2015. Part of this Act has overturned the Superstrike Case.

Where a tenancy commenced pre 6th April 2007 (the date the Housing Act came into force) and has now come to the end of its initial fixed term and become a periodic tenancy, Landlords now have until 23rd June 2015 to protect the deposit if they haven’t done so already.

Once the grace period ends, Landlords who have not protected the deposit and served the relevant prescribed information could face a penalty of between one and three times the value of their deposit and will not be able to serve a valid Section 21 notice to regain possession of the property.

Therefore it is imperative that if you have a property that falls into this category that you must ensure that the deposit is protected in an approved Government Scheme and the prescribed information served prior to the 23rd June 2015

Protection of Residential Deposits

Since 6th April 2007 there has been a requirement that Landlords that collect deposits for Assured Shorthold Tenancies (ASTs) must hold tenant’s deposits in an authorised tenancy deposit scheme, of which there are a variety available. The purpose of this was to improve the protection of the tenant by ensuring that if there was a dispute at the end of the tenancy, an independent third party can assess how much of the deposit should be returned to the tenant and how much is retained by the Landlord.

There are two types of deposit protection:

  1. Custodial – The scheme itself holds the deposit during the tenancy
  2. Insurance Backed – The Landlord or Agent hold the deposit during the tenancy but still register the deposit with a scheme. If there is a dispute at the end of the tenancy the disputed funds will be passed to the scheme for assessment.

In summary deposit protection means:

  1. The tenants deposit in protected in a government authorised scheme
  2. The tenant must be provided with the chosen schemes prescribed information and the deposit must be detailed with the tenancy agreement

The consequences of a Landlord not protecting the deposit correctly is not being able to serve a valid notice to end the tenancy and regain possession of the property under Section 21 of the Housing Act 1988. A valid Section 21 notice could then only be served once the deposit is repaid in full.

If the Landlord has not given the tenant the prescribed information in the timescales stipulated by the relevant scheme (usually 30 days) again, a valid Section 21 notice cannot be served. Even once the prescribed information is given to the tenant after 30 days the tenant can still apply to the court for compensation of between one and three times the deposit amount.

Superstrike Ltd v Marino Rodrigues

There has been a recent case in the Court of Appeal (Superstrike Ltd v Marion Rodrigues) which has set a precedent which effects how deposits are dealt with. The Superstrike Case dealt with an AST that was created in January 2007, prior to the introduction of the mandatory requirement to protect tenancy deposits. The AST ran for its initial term and then continued on a statutory periodic basis (ie from month to month) from January 2008 and the deposit remained unprotected.

The Court of Appeal ruled that when the tenancy moved onto a statutory periodic basis in 2008, a new tenancy was created and a new deposit was deemed to be received. As a consequence, it was held that the original deposit now fell under the tenancy deposit protection legislation.

As the Landlord had not:

  • met the requirements of protecting the deposit and providing the tenant with the Prescribed Information, or
  • returned the deposit to the tenant and thus avoided the application of the legislation

he was not entitled to serve a Section 21 Notice to end the tenancy. In addition, the Landlord could face a fine of up to 3 times the amount of the deposit.

Whilst Superstrike dealt with a tenancy which began prior to 6th April 2007, there are implications for those which have been created since, even though the deposit is registered with an authorised deposit protection scheme.

As you can imagine the effect of this case has caused some confusion with reference to the legal position on some aspects of deposit protection.

It is extremely important that Landlords understand the types of tenancy that exist within their residential portfolios and how deposits are protected. The consequences of important time limits and supplying the necessary information being missed can be severe.

You should note that it is possible that further case law will challenge the precedent established by Superstrike and there are differing views on how this case could be interpreted.

Lucinda Riddell, GSC Grays Richmond Office tel: 01748 829210

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