Landlords: Are you breaking the law without even knowing it?

Ref. Superstrike Ltd v Rodrigues [2013] EWCA Civ 669

The recently completed case of Superstrike Ltd v Rodrigues has, for the first time, shone a light on the full extent of the deposit protection requirements for Landlords. The result could mean that hundreds, if not thousands, of landlords up and down the country are breaking the law.

The facts of this case involved a tenant, Mr Rodrigues, bound in a one year (less one day) fixed term tenancy that came to an end after the 6 April 2007 date of commencement of the Deposit Protection aspect of the Housing Act 2004. The issues arose before the introduction of amendments in the Localism Act 2011, so only the original text of the Act was reviewed by the Judge – Lord Justice Lloyd.

Before the original tenancy came into affect, a deposit was taken as security for the performance of the tenant’s obligations under the lease. This sum was not subject to the additional protection now prescribed by the Housing Act 2004 (Chp. 4. S. 212-215). On termination by effluxion of the original agreement, the tenant was entitled through Section 5 of the Housing Act 1988 (the ‘Act’) to a statutory periodic tenancy on the same grounds, which he took up.

On 22 June 2011 the Claimant issued a notice under Section 21 of the Act requiring possession. The County Court set this appeal aside, on grounds of non-compliance with the provisions of the 2004 Act concerning the protection of tenant’s deposits.

Section 212 of the 2004 Act obligates the Secretary of State to provide the infrastructure for at least one or two tenancy deposit schemes for use in connection with shorthold tenancy agreements. Section 213 goes on to state the requirements of such tenancy deposits which includes specifically that:

“(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.”

The defendants contended at the Court of Appeal that the deposit was received before the date that the relevant provisions came into force. The wording of the provisions refers to “when it is received” and thus none of these provisions had any bearing on the deposit held.

Mr Westgate, on behalf of the Claimants, submitted instead that, even though no money changed hands and no book entries were made at that stage, nevertheless the landlord had to be treated as having received the amount of the deposit, referable to the new tenancy, on 8 January 2008. Otherwise the deposit would only have been held as security for obligations and liabilities under the original fixed period tenancy, which would make no sense, at least for the landlord.

The entire judgement is accessible at this link.

Lord Justice Lloyd agreed, stating that:

“The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.

“It follows that, on my analysis, the tenant did pay, and the landlord did receive, the sum of £606.66 by way of a deposit in respect of the new periodic tenancy in January 2008, and so the obligations under section 213 applied to the deposit so received.”

Having established that a deposit was ‘paid’, it follows that the date of that payment would have been after the deposit protection schemes’ introduction and thus subject to their essential protection. The Landlord did not utilise the available schemes and was thus in breach of S. 213 of the 2004 Act. An order for possession was therefore not available to them and the Appeal was held.

As Lord Justice Lloyd said, the escalation of the matter to the Court of Appeal “suggests a perception of the importance of the issues, for landlords and for tenants”. There will likely be hundreds of Landlords across the country who are party to fixed term tenancy agreements that have expired and quietly transformed into statutory periodic tenancies on the same terms. Depending on the exact dates, these Landlords could also be denied possession of their own properties – potentially even if they now, belatedly, protect their deposits.

SRJ / LCB                                                                                                       28/06/2013