Legal notes James Driscoll examines the continuing problems raised by the tenancy deposit scheme legislation
Key points
- Another difficulty in applying the TDS has emerged
- It applies to a case where a deposit was taken long before the scheme was enacted
- Here the landlord could not recover possession as the deposit had not been protected
Charalambous v Ng [2014] EWCA Civ 1604; [2014] PLSCS 357 is another decision on tenancy deposits. It illustrates the continuing uncertainty over the correct interpretation of the statutory scheme (or, some might say, the poor drafting of the legislation).
The appellants, Mr Charalambous and Ms Karali, took an assured shorthold tenancy in August 2002 for a term of one year (less a day) paying a deposit of £1,560 to the landlords, Mr and Mrs Ng. The agreement was renewed on two occasions (August 2003 and August 2004) and on both occasions the same deposit was payable under the new tenancy agreements. But no money changed hands and the original deposit was instead credited against the new tenancy.
After the end of the third tenancy agreement, a statutory tenancy came into existence in 2005 (presumably because a new contractual agreement was not entered into). Seven years later (October 2012) the landlord served a notice under section 21 of the Housing Act 1988 requiring possession (commonly known as the “notice-only ground”).
The Court of Appeal allowed the tenant’s appeal against the county court order, which stated that the notice was valid.
Background to the legislation
The tenancy deposit scheme (“TDS”) was introduced by sections 212 to 214 of the Housing Act 2004. When it was launched in April 2007, many thought that it applied only to tenancies created on or after commencement. It applies where a landlord takes a deposit when an assured shorthold tenancy (“AST”) is granted. The penalties for non-compliance are tough: a court can order the landlord to repay an unprotected deposit and also up to three times the sum deposited; and, more importantly perhaps, the landlord cannot recover possession on the notice-only ground.
The scheme had laudable objectives: it was designed to address the difficulties tenants faced at the end of a tenancy in trying to recover their deposit. A combination of the growth of the private rented sector, the use of ASTs and the desire of most landlords to take a deposit meant that the introduction of the new scheme would have a significant impact on the private rental market.
As the growing body of case law illustrates, the drafting of the provisions (consisting of just four sections) was wanting. They were amended by the Localism Act 2011 (and there are further changes in the Deregulation Bill 2014). The 2011 changes made substantial amendments to the 2004 Act. Under Article 8 of the commencement order for these changes, they apply to any tenancy deposit that was taken in connection with a shorthold tenancy where the tenancy was in effect on or after 6 April 2012.
Approach of the courts
So how does this affect deposits that were taken before the provisions were enacted and prior to their commencement? In Superstrike Ltd v Rodrigues [2013] EWCA Civ 669; [2013] 2 EGLR 91, the Court of Appeal decided that where a fixed-term AST was granted before commencement of the TDS, when that term expired and a statutory periodic tenancy arose after commencement, the landlord was required to deal with the deposit in accordance with the TDS.
In Charalambous, the court also rejected the argument that the TDS should not be applied as to do so would amount to retrospective legislation. The court reasoned that the service of a section 21 possession notice is prospective and it only concerns notices given after commencement, as they were here. As at the date the notice was given, there was a deposit that had not been protected. The restrictions on serving the notice therefore applied to this case.
Nor did the court believe that the landlords suffered hardship under this ruling. They could have paved the way for giving a notice in one of two ways. First, they could have paid the deposit into the scheme, or second, if this was impossible or inconvenient the deposit could have been repaid to the tenants. Once one of these steps were taken the landlord would be free to serve a valid possession notice. The commencement order allowed for a period of 30 days for landlords to comply.
Future direction
What are we to make of the direction the TDS is taking? The situation that arose in Charalambous – an AST created several years ago and preserved by a statutory tenancy – may not be that common. That said, it is doubtful if the option of simply returning the deposit to the tenant will prove attractive to the landlords in this case. After all, the whole point of taking a deposit is to protect the landlord in the event of a tenant having caused damage to the property during the tenancy.
At present none of the provisions in the Deregulation Bill on tenancy deposits will, it appears, apply to the problems revealed by this case. As the court noted: “If parliament considers that there is a need to make additional changes to the law, the opportunity is there” ([32]).
Finally, the court referred to a comment from a previous Court of Appeal case that legislation “like this” , “ought to be written for lay people” ([24]). One wonders how many lay people would understand how new legislation on tenancy deposits would apply to a tenancy granted some five years before a new law was brought into force?
Professor James Driscoll is a solicitor, a writer and freelance trainer
