So what’s the big deal?
The facts: On 12 January 2007, Mr Rodrigues entered into a fixed term tenancy agreement for a year less one day. The deposit was not protected as the compulsory tenancy deposit legislation (which required landlords to protect the deposit and serve the prescribed information) came into effect on 7 April 2007 i.e. after the tenancy agreement was entered into. On the expiry of the fixed term, Mr Rodrigues remained in occupation under a statutory periodic agreement and the deposit remained unprotected. On 22 June 2011 the Landlord served a section 21 notice and issued proceedings on it, which Mr Rodrigues defended, amongst other things, on the basis that the section 21 was invalid as it was served while the deposit was unprotected.
The decision: Firstly the Court of Appeal ruled that the statutory periodic tenancy was a new tenancy under Section 5 of the Housing Act 1988. This decision is uncontroversial as the wording of the section is clear.
The next question was – if a new statutory tenancy arose in January 2008, was a deposit received at this time (thus triggering the requirements to protect the deposit and serve the prescribed information?) The landlord argued that it didn’t as no money was physically received, i.e. no cash, cheque or bank transfer made but the Court of Appeal disagreed. In paragraph 38 of his judgment, Lewison LJ stated:
“In my judgment, although there is no evidence that the parties said or did anything of that kind, and it is likely that they were not aware of the nature or incidents of the legal process that took place when the fixed term tenancy came to an end, nevertheless the position as between them should be treated in the same way as if they had had such a discussion. 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”.
What this means: When a new statutory periodic tenancy arises, the deposit is received for the purposes of section 213 Housing Act 2004 as at that date and so must be protected and the prescribed information served.
Tenancies that were created before the deposit protection legislation came into effect i.e. before 6 April 2007, but rolled over into a statutory periodic tenancy after that date, fell to have their deposits protected on the expiry of the fixed term.
On the expiry of the fixed term and the arising of a statutory periodic tenancy, or a new fixed term, the requirements of the Housing Act deposit rules kick in for this new tenancy, which are that within 30 days of receipt of the deposit it must be protected and prescribed information served. Whether the prescribed information must be re-served has been a matter of discussion and you can enjoy some excellent analysis from Nearly Legal and David Smith of Anthony Gold Solicitors.
A cautious landlord and agent might prefer to re-serve for each new tenancy, (including a statutory periodic tenancy), than expose themselves to tenancy deposit claims or defences to section 21 possession proceedings.
Following this case there is undoubtedly a number of long-term tenants who could challenge the validity of any section 21 notice served on them. Landlords in doubt may want to consider returning the deposit to their tenants (with or without deductions) before service of a section 21 notice.
Interestingly, the courts service N5B form for accelerated possession proceedings asks the Claimant at section 7(a): “was a money deposit received on or after 6 April 2007?” After the Court of Appeal decision one presumes that the answer to this will, if a statutory periodic tenancy arose after that date, have to be answered affirmatively.
Statutory periodic tenancies that arose before that date and have never been renewed will not be affected by this decision.
On 17 June 2013 the deposit schemes made a joint press release here.