Superstrike Ltd v Rodrigues [2013] 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.
Contents
Background
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.
Questions
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?
The law
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.
Conclusion
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.
Comment
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.
Full compliments should go to David d’Orton Gibson from Training for Professionals because he correctly predicted this case.
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.
What is your view regarding existing tenancies that have already become periodic, the deposit was protected and the prescribed information served at the start of the original fixed term? It is no longer possible to serve the information within 14 or 30 days so the only options I can see are to serve it now, out of time and therebny concede that this should have been done earlier or, my preferred option, to do nothing and argue if necessary that the original service should be deemed to have met the requirements in the same way that the deposit was deemed to have transferred to the new tenancy.
Hello
It really is up to you. This case does not say prescribed information must be given upon turning statutory periodic but there are many commentators suggesting this as a real issue as a result of this case. Personally I still maintain this won’t be necessary because my view is once it’s done, it’s done and it’s a once and for all duty. However, we can’t recommend that because there is genuine concern that it might be required.
Also, the main fear is the inability to serve a section 21 notice. Therefore, as you say, there is nothing that can be done to prevent a penalty now (if a new prescribed information is needed which I don’t think it is) so as long as it’s given before a section 21 notice is served, it will at least allow possession to proceed (prescribed information can be served late to allow service of a section 21 whereas this can’t be done for the deposit protection element.)
It is worth noting these recent cases relating to deposits are where neither the deposit nor prescribed information had ‘ever’ been given. We’ve had no such case where a deposit was perfectly protected and ‘full’ prescribed information given.
Many thanks
Guild of Residential Landlords
Thanks for the kind words Adrian. I am sorry that I was right in one sense as I realise how many people this might affect. I agree there will be fairly few would were given a fixed term just before April 2007 and it ran SPT after. However, the point at judgement of the new tenancy and prescribed information is more common. Pre Localism Act we would not have been worried if the prescribed information was given on going statutory periodic or not as if there was an issue it could easily be resolved later. The danger in the localism Act is that it is a “cliff edge” experience and once the 30 days are passed that is it, no chance to avoid the penalty.
I think it should be noted that the actual legislation does not say you have to protect the deposit within 30 days, it says you have to comply with the initial requirements of the scheme. Therefore the question of what you have to do will vary by scheme. For example, MyDeposits are quite specific that there is no need to buy a new protection when it goes statutory periodic. Therefore the “initial requirements” do not seem to require you to do anything. The Custodial scheme already have the information registered and hold the money and TDS’s initial requirements are to enter the information in their system (which you have presumably done.) It will be interesting to see if any of the schemes edit their rules in response to this judgement to try and tidy up the legislative mess!
I am more worried about prescribed information as this requires the giving of prescribed information within 30 days “commencing” with the date the deposit is received. If the court have held there is a new receipt (as they did in Superstrike), then if the question is asked did you give prescribed information within 30 days, COMMENCING with the date of the ‘virtual’ receipt of the money in respect of the statutory periodic tenancy, strikes me as a tough one to get out of.
We have been using tenancy agreements which avoid statutory periodic tenancies for some years now and this just proves their value.
there may be another potential problem your members may want to consider. This surrounds the habit (generally a bad one in my view) of issuing section 21 notices at the outset. If the court have held that the statutory periodic is a new tenancy then a notice served during the fixed term will now be in a weaker position when the new tenancy arises after the fixed term. The general rule would be that a notice served a a first tenancy would not be enforceable against a tenancy that was a renewal. We will have to wait and see how this plays out but you can be sure someone will try and wriggle out of possession on this point and it might be wise to not serve notice till you want possession to avoid it being you who has to argue to the Court of Appeal!
“If the court have held that the statutory periodic is a new tenancy then a notice served during the fixed term will now be in a weaker position when the new tenancy arises after the fixed term. The general rule would be that a notice served a a first tenancy would not be enforceable against a tenancy that was a renewal.”
A SPT is a new tenancy, nothing new, this is stated in HA 1988.
In addition a s.21 notice served during a fixed term tenancy remains valid in the SPT. This is also made clear in s.21(1)(b).
There’s nothing new: a SPT is a new, distinct tenancy. This is made plain and clear is the Housing Act 1988, as the court commented in this case (they did not ruled on this, just state an obvious fact).
Whether a deposit needs re-protection upon a SPT arising has been a matter of the schemes’ T&Cs so far. I’m not sure this ruling changes this.
Thank you, Adrian, for bringing this important case to our attention so quickly. Other websites are only just mentioning.
The Scottish system makes so much more sense as the penalty for not registering is up to three times the amount of the deposit, which gives complete discretion to take account of circumstances. The tenant also has only three months to take action and not 6 years as in England.
Furthermore, I believe, the prescribed information requirement is easier to comply with and doesn’t result in reams of paper being served.
So much time and money has been wasted trying to sort out the mess the English legislation has resulted in, and the only people to benefit – and who will continue to benefit – are lawyers.
I’ve added a new article which talks further about this case here: https://www.landlordsguild.com/superstrike-ltd-v-rodrigues-a-mini-rant-and-reflection/