Regular readers of our blog will be aware that anyone who lets out a property to a residential tenant must keep any deposit they receive on a Tenancy Deposit Scheme (TDS) (see our previous post – Residential landlords: deposit wisely!).
However, the case of ‘Superstrike’, heard last year indicates that landlords must be careful not to sit on their laurels once a deposit has been sent to a TDS and the tenant provided with the prescribed information as to that TDS.
The decision in Superstrike concerned a tenancy which was originally granted three months before the TDS requirements were introduced on 6 April 2007. On 8 January 2008 the tenancy became a statutory periodic tenancy (by virtue of section 5 of the Housing Act 1988). The deposit was not returned to the tenant.
On 22 June 2011 the landlord served a notice to determine the tenancy. The Court of Appeal decided that the notice to determine was of no effect. Although the TDS requirements did not apply to the initial 12 month fixed – term tenancy, the periodic tenancy which arose on the expiry of that tenancy was a new tenancy to which the TDS requirements did apply.
Several questions arise as a consequence of that finding:
- Is it necessary for Landlords to ‘re-protect’ deposits which were received after 6 April 2007 for fixed-term tenancies when/if they become statutory periodic continuation tenancies? On a strict application of Superstrike it would be necessary for the landlord to effect a wholesale re-registration of the deposit. Where landlords are actually able to re-register a deposit they would be well advised to do so. Some TDSs now provide for the deposit to be automatically transferred to any new fixed-term tenancy or a statutory periodic continuation tenancy.
- Is it necessary to re-serve the prescribed information as to the TDS? Irrespective of whether or not the deposit is re-registered, landlords would be well advised to re-serve the prescribed information within 30 days of the new fixed-term tenancy being granted or statutory periodic continuation tenancy arising.
- What are the consequences of a landlord failing to comply with the TDS requirements within the prescribed 30 day period?
- The tenant may claim for an order either requiring the landlord to repay the deposit to the tenant or to pay the deposit into a TDS and, in addition, for the landlord to pay a sum of money to the tenant equivalent to between the amount of the deposit (as a minimum) and three times the amount of the deposit (as a maximum).
- The landlord may not be able to serve a valid notice unless and until the tenant brings a claim or the landlord returns the deposit to the tenant. The solution of handing back the deposit, whilst unappealing to many landlords, has at least an element of simplicity about it. Or does it? If the deposit was registered late, it will still be subject to the rules of the TDS. Many such schemes will only release a deposit if both parties agree. The tenant may well have a vested interest in refusing to accept his deposit back, at least until he is ready to move on.
The rules surrounding tenant’s deposits are largely untested by the higher courts. Landlords should be aware that whilst this decision could allow them to serve a section 21 notice after the expiry of a fixed-term tenancy where before they were unable to do so because they had failed to comply with the statutory requirements within 30 days, it also means they could be liable to the tenant for two defaults (theoretically an amount equivalent to eight times the deposit stated in the original tenancy agreement).
The clear messages for residential landlords and agents are:
- Know the TDS requirements;
- Apply them in good time after a fixed-term tenancy is granted; and
- Diarise to re-serve the prescribed TDS information (as a minimum) within 30 days should the fixed-term tenancy morph into a statutory periodic continuation tenancy.
*Superstrike Limited -v- Rodrigues  EWCA Civ 669