Superstrike Ltd v Rodrigues  EWCA Civ 669 (14 June 2013) is a worrying case which fundamentally changes previous thinking on certain aspects of tenancy deposit legislation and in particular landlords duties.
The landlord granted a tenancy to the tenant on 8 January 2007 for a term of one year less a day at a rent of £606.66 per calendar month. At the same time, a deposit of the same amount was paid by the tenant. As tenancy deposit protection legislation took effect on 6 April 2007, the deposit was received prior and therefore didn’t need protecting at that time. The deposit was never protected by the landlord.
No new tenancy agreement was granted and the tenant was entitled to remain under a statutory periodic tenancy as per section 5 Housing Act 1988 after the fixed term ended.
On 22 June 2011, the landlord served a section 21 notice on the tenant which was defended on the grounds that when the tenancy became statutory periodic in 2008, that was a new tenancy and as a result, the deposit had in effect been paid to the landlord again under the new periodic tenancy and therefore should have been protected on or after 8 January 2008 (within 14 days as was required at that time). The tenant argued that because the deposit was not protected when the section 21 notice was served in June 2011, then, the notice was invalid.
There were basically two questions. First, when the tenancy became statutory periodic, was that a brand new tenancy and second, if the statutory periodic tenancy is a brand new tenancy, does that trigger a requirement of the landlord to protect the deposit?
We won’t go over the law regarding protection again and nothing in this case turns on the new provisions made by the Localism Act which has been covered many times by us. However, to recap in summary form, as originally drafted in 2007 section 213 Housing Act 2004 required any deposit as from the time when it is received be protected with an approved tenancy deposit scheme within 14 days. Where there was a failure to protect, the penalty was three times deposit plus return of the original amount. In addition, (as written in 2007) under section 215, no section 21 notice may be given in relation to the tenancy at a time when the deposit is not being held in accordance with an authorised scheme.
Is a statutory periodic tenancy a ‘new’ tenancy?
In answer to the first question as to whether a statutory periodic tenancy is a brand new tenancy (in the sense that it is equivalent to granting a renewal tenancy) the court said at para 27:
… It is clear from the 1988 Act that what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant’s previous status. I do not see that there can be any doubt as to that. …
Does a statutory periodic tenancy trigger a repayment of the deposit?
The second question follows on from this first point. As the statutory periodic tenancy is a new tenancy, the court held that in effect, the landlord had repaid the deposit to the tenant under the fixed term tenancy and then immediately the tenant had in effect paid a new deposit to the landlord for the new statutory periodic tenancy. This is the same as if a renewal had taken place:
… the new tenancy contained an equivalent provision as to a deposit, in replacement for the provision under the express tenancy … But the legal position after 8 January 2008 must have been that the deposit was held by the landlord as security for the performance of the tenant’s obligations, or for the discharge of any liability of his, arising under or in connection with the new statutory periodic tenancy, not (or not only) in respect of such obligations or liabilities arising under the original fixed term tenancy. How had that come about? It must have been on the basis that the tenant’s right to be credited with the deposit at the end of the fixed period tenancy, as well as his obligation to pay, and the landlord’s right to receive, an equivalent deposit under the new statutory periodic tenancy, were treated as satisfied by the landlord continuing to hold the same sum of money as before on the same basis as before but by reference to the new tenancy.
The landlord argued that the requirement to protect a deposit only applies when the deposit is “physically received” after 6 April 2007. By physical receipt he meant payment by cash, cheque, bank transfer or in some other comparable way, such as occurred in January 2007 when the tenancy was first granted. However, the court didn’t agree (para 36):
I am not persuaded by that argument. The 2004 Act has to be construed in the light of the provisions of the 1988 Act as regards assured shorthold tenancies, including section 5. Once the new statutory periodic tenancy had come into being after the commencement date, a tenant’s deposit being already held, it would be necessary to consider whether and if so how the 2004 Act applied. As I have said already, it must have been the landlord’s position, by then, that it held the sum of £606.66 as a deposit as security for the performance of the tenant’s obligations, or for the discharge of any liability of the tenant, arising under or in connection with the new tenancy. That could only be the correct legal position if that sum of money was to be treated as having been paid pursuant to the tenant’s obligation under the periodic tenancy to provide a deposit. That obligation only arose on the expiry of the fixed term tenancy, so the payment at the beginning of that fixed term cannot have given rise to the position which obtained once the fixed term had expired. Something must have happened in January 2008 which led to the result that the deposit was held in relation to the new tenancy. That something could have been either an actual (or, as Mr Bhose put it, physical) payment (but none took place in this instance) or something which amounted to payment.
The landlord was refused possession because on 8 January 2008 it was regarded that he had received a new deposit from the tenant for the new tenancy created by the Housing Act 1988. As this deposit was not protected, section 215 Housing Act 2004 prohibited the service of the notice which the landlord served in 2011 and as a result the notice was of no effect.
This is clearly a seriously worrying position for landlords although perhaps there aren’t as many tenancies that will be affected as first thought. In order for this case to apply, a tenant must have moved in prior to 6 April 2007 and gone statutory periodic after 6 April 2007. In addition, those tenants must still be in occupation now. If that is the case, the deposit will need to be returned before any section 21 notice can be served.
Even more worryingly though is that the court left open the possibility that ‘all’ deposits taken prior to 2007 where the tenant is still in occupation may need returning before a section 21 notice can be served (paras 43 – 45):
… Towards the end of a further skeleton argument lodged thereafter by Mr Westgate and Mr Chataway another point was taken, namely that even if the provisions of section 213 had not applied to the deposit as a result of the creation of the statutory periodic tenancy in 2008, nevertheless the terms of section 215(1) were such that it applies so as to prevent a section 21 notice from being served whenever a deposit is held which is not held in accordance with an authorised scheme.
I can see the basis for this argument on the literal words of the section. If it is right, it would have had extensive consequences when the legislation first came into force, since it would have required any deposit to be put into an authorised scheme before the landlord could serve a section 21 notice after the commencement date, even if there would have been no other obligation to do so under section 213. It is not clear how significant would be the effect of this point now, six years after the provisions first came into force.
Interesting as the point is, it is not necessary to decide it for the purposes of determining this appeal. For that reason, I prefer not to deal with it but to leave it to be decided in a case in which it matters, if one such were to arise.
This case is wholly unexpected and frankly I don’t agree. But, it’s what we have and only the Supreme Court can overturn it (I don’t know if permission to appeal has been sought).
The significance of this does not just rest with the circumstances in this case. Because the deposit is re-taken by the landlord upon a statutory periodic tenancy and renewal, this might mean that new prescribed information must be given not only at the time of ‘physically receiving’ the deposit but also whenever a tenancy becomes statutory periodic or a renewal is provided. We certainly wouldn’t dare risk suggesting otherwise until there is some judgement on this. There doesn’t seem to be any suggestion that a deposit needs unprotecting and then re-protecting at the stage of statutory periodic and renewals but this case certainly asks the question and is something we will ponder!
This is a case where (as accepted by the court, see para 40) the landlord has literally done nothing wrong and yet has been penalised. There will be many thousands of tenancies still in existence (We personally have a small number who are still in occupation where the property was let just before the legislation and turned periodic after because we tried to get as many let as quickly as possible before the legislation took effect!)
New legislation now needs to be introduced either (a) abolishing the tenancy deposit protection regime altogether or (b) simplifying the whole procedure and reversing this decision. The current position is simply unsustainable because nobody quite knows (however clever they may purport to be ) what to advise landlords to do in every given situation.
For a personal view on this case along with further thoughts, see our Superstrike mini rant and reelection post.
What should landlords and letting agents do from now?
This decision significantly tightens the advice given in relation to deposits.
We have produced some guidance regarding Superstrike Ltd v Rodrigues which explains what landlords and letting agents should now do. The guidance is also available in PDF format from the same link.