What’s changing?

From 1st October 2010, the rent threshold for when a tenancy is an assured or assured shorthold will be increased from £25,000 to £100,000. The legislation making this change is here.

From 1 December 2011, the same increase takes effect in Wales

Retrospective?

It was previously being reported that the change would be retrospective, however this is not the case but all tenancies that are not assured or assured shorthold on the 1st October will become so on that date onwards if the reason they were not assured (shorthold) was because of the rent threshold [s.1 Housing Act 1988.]

Do I need to protect my deposit within 14 days of the change?

To be absolutely certain of no problems, a landlord is well advised to protect the deposit and issue the prescribed information, however it is submitted that this will not be necessary unless a new tenancy agreement is granted.

The reason we don’t believe the deposit will need protecting is because essentially it is why a deposit was received that matters when protecting a deposit and not necessarily what may then happen in the future.

213 Requirements relating to tenancy deposits

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

Note the wording of s.213(1) above states that a deposit received in connection with a shorthold tenancy must be dealt with by a scheme. At the time of receiving the deposit, it was not received in connection with a shorthold tenancy. It was received in connection with a contractual (sometimes known as common-law) tenancy.

Section 213(3) goes onto to say:

(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 14 days beginning with the date on which it is received.

Again, it refers to the receiving of a deposit in connection with a shorthold tenancy. (Also note, contrary to popular belief, there is no reference to the “commencement” of a shorthold tenancy.)

It is submitted that because the deposit was never received in connection with a shorthold tenancy, section 213(1) and subsequent sub-sections do not apply and therefore, there is no requirement to protect the deposit.

This is distinguished from a renewal. If a landlord actually grants a new tenancy sometime on or after 1 October 2010, the position is different. This is because the old tenancy has been surrendered and a new tenancy has been granted (this is called a surrender and re-grant by operation of law). In this type of scenario, the deposit has technically been repaid to the tenant under the old tenancy and then the landlord receives a new deposit under the new tenancy (even though no actual money changes hands). See for example Coutinho v Atkinson Clerkenwell & Shoreditch County Court & Saad v Hogan Brentford County Court, 16 February 2009 (appeal heard in the County Court.)

When the rules change on 1 October, there is no surrender and re-grant. It is simply that what was a contractual tenancy becomes an assured shorthold tenancy, a little like when a fixed term assured (shorthold) tenancy ends, it becomes a statutory periodic tenancy.

A statutory periodic tenancy is not a tenancy that a landlord has any choice over as it is granted by statute. A renewal is a voluntary arrangement and provides a physical surrender and re-grant in particular where the length of the term is increased [Well Barn Farming v Backhouse [2005] 3 E.G.L.R. 109.]

The DCLG were insisting that all deposits required protecting within 14 days of 1 October 2010, however it is being widely reported that they have revised their position after several commentators including this website said it wasn’t necessary. They now say:

We do not consider that deposits taken before 1 October will need to be protected as these were not taken in connection with a shorthold tenancy and therefore do not meet the criteria for protection specified in the Housing Act 2004.

However, agents and landlords should be aware that this is a matter for the Courts to decide and it would be wise to protect deposits on 1 October and certainly on any renewal of the tenancy.

If a landlord wishes to play it safe and protect a deposit anyway, we have confirmed with Kevin Firth of the Deposit Protection Service (custodial scheme) that even if the deposit doesn’t need protecting, they will accept any deposit even for non ASTs. The Dispute Service also allow protection of non AST deposits. Finally, MyDeposits have new rules taking effect from 6 April 2010 which seem to be attempting to stop certain late protections, or charge a fee for a late protection. It is unclear from the rules whether a deposit that doesn’t need protecting under the Housing Act 2004 is allowed and if so whether a late protection would be allowed.

Terms of the tenancy

A potential problem with the change is if the terms of the tenancy in the old agreement are not compatible with an assured shorthold tenancy. Or if there are terms missing from the contractual tenancy that had a landlord or tenant known there was going to be this change would have incorporated.

However, in essence, often the clauses of the two types of tenancy will be similar, so the terms of the contractual tenancy would continue with the assured shorthold tenancy. The main difference will be the notice period for a landlord. The current contractual tenancy will no doubt have a clause allowing the landlord to give one months notice. However, this will be overruled by section 21 Housing Act 1988 and the usual two months notice would be required.

Possession

After the change

As discussed above, after the 1 October, a section 21 notice will need to be served and NOT a notice to quit as would have been the case previously.

There will be no ability for the landlord to forfeit the tenancy after the change.

A section 8 notice will need to be served after the change should the landlord require possession on the grounds of rent arrears or breach of tenancy etc.

 

Transitional cases

The rules that allow the threshold to be changed unfortunately don’t allow for any transitional provisions. Only the actual threshold figure is to be changed.

Forfeiture for non-payment of rent

If the tenancy is forfeited for non-payment of rent before the change (usually by service of court papers), it is submitted this will remain in place even if the possession hearing takes place after 1 October. This is because the act of forfeiture brings the tenancy to an end immediately and so there will be no tenancy on the 1 October to turn into an assured shorthold.

It has been suggested that a court might order that a section 8 notice should have been served if the forfeiture is during the transitional period. In addition to the above argument that the tenancy was ended before the change, It has also been suggested that, it could be argued that the court has power to dispense with service of the notice. However, bear in mind, this is not available for ground 8 claims (2 months or more arrears) [s.8(5) HA 1988] but the court can dispense with the requirement for other grounds (therefore it should be argued on grounds 10 and 11) but these are discretionary.

8.—    Notice of proceedings for possession.
(1) The court shall not entertain proceedings for possession of a dwelling-house let on an assured tenancy unless

(a)    the landlord or, in the case of joint landlords, at least one of them has served on the tenant a notice in accordance with this section and the proceedings are begun within the time limits stated in the notice in accordance with subsections (3) to (4B) below; or

(b)    the court considers it just and equitable to dispense with the requirement of such a notice.

(5) The court may not exercise the power conferred by subsection (1)(b) above if the landlord seeks to recover possession on Ground 8 in Schedule 2 to this Act.

Notice to Quit

If a notice to quit has been served and expired prior to 1 October, it is submitted, even if a possession hearing takes place after 1 October 2010, there will be no assured shorthold tenancy because similar to forfeiture the expiring of a (valid) notice to quit brings the tenancy to an end. There will therefore be no tenancy on 1 October 2010 to drift into being an assured shorthold.

If a notice to quit is served before 1 October but expires after, the position is less clear. It is submitted that the notice will be valid because it would have been the correct notice to serve at the time of service. The only difference would be that rather than ending the tenancy like a notice to quit normally would, the tenancy would only end after any possession order subsequently obtained was executed [s.5(1A) Housing Act 1988.]

If any of our members needs to serve a notice that may be affected by this transitional period, please contact us, as we will be able to produce a suitably worded notice that will comply with both a notice to quit and a section 21 notice which should avoid any problems.

Pre 28 February 1997 tenancies

One important point to watch out for is any tenancy granted after 15 January 1989 and before 28 February 1997 which was not assured or assured shorthold due to the threshold. As the Painsmith blog points out, these tenancies would turn into assured tenancies and not assured shorthold tenancies.

This has the effect that the tenant would, from 1 October 2010 have full security of tenure for life (albeit at market rent).

Therefore, ideally to avoid any doubt as to whether the tenancy has ended or not, a landlord would be well advised to issue a notice to quit promptly and then commence eviction proceedings against the tenant unless the landlord is happy to have a secure tenant.

Of course, if the landlord does nothing and allows an assured tenancy to take effect, the section 8 notice and in particular ground 8 (two months arrears) will still be available. It’s just the section 21, two months no reason notice that is not available. Also, in this case, there will be no question as to any deposit because it wouldn’t need protecting as a deposit only needs protecting against assured shorthold tenancies.

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