Legal notes: Avoiding that churning feeling

Flat sharing arrangements without corresponding statutory compliance can result in tripwires for landlords – Elizabeth Dwomoh discovers how. Key point Landlords must protect a tenancy deposit notionally received under casual flat sharing arrangements The “flat share” or “house share” is a modern phenomenon created by economic and societal pressures. These types of arrangements usually involve property being let under a joint tenancy to a group of unrelated individuals for rent. These arrangements are often informal in nature. When a joint tenant decides to leave the property, a replacement tenant is found by the remaining or outgoing tenant without the involvement of the landlord. Usually, the incoming tenant will pay the outgoing tenant their share of the rent deposit. Landlords find such arrangements convenient from a management perspective, but Sturgiss and another v Boddy and others [2021] EW Misc (CC); [2021] PLSCS 134 serves as a reminder of the potential pitfalls. The churns Richard Boddy was the owner of a flat in Maida Vale, London. In June 2004 he granted a joint assured shorthold tenancy to four individuals. The tenants paid a deposit. The rent was not protected as there was no obligation on him to do so, because the tenancy deposit scheme was not operational.  Boddy arranged with his tenants that if any of them wanted to vacate the flat they could find a suitable replacement among themselves. Over the years there had been a number of tenant substitutions, which HHJ Luba QC described as a “churn”.  In 2018, churn A brought the first claimant, Courtney Sturgiss, into occupation of the flat with the second defendant, Bella Aude, and the third defendant, Braiden Moffat. Sturgiss paid the sum of £1,050 to the outgoing tenants for their share of the deposit and paid her share of the rent thereafter. Churn B took place in 2019. Moffat moved out of the flat and the second claimant, Tanya Gupta, replaced him. Gupta paid rent and the sum of £800 to Moffat for his share of the deposit. In January 2020 the current tenants of the flat queried the nature of their tenancy. Boddy informed them that they occupied the flat under an AST on a “roll forward” basis. Gupta further queried if the tenancy was protected. Boddy informed her that the deposit taken in 2004 had not been protected because there had been no obligation on him to do so. Further, no subsequent deposit had been taken by him or protected since.  Churn C occurred in 2020 when Elrica Raja replaced Gupta. Raja paid rent and paid to Gupta the sum of £800 for her share of the deposit. At the onset of the Covid-19 pandemic, Sturgiss unilaterally terminated her tenancy and returned to her home country. She informed Boddy that she was leaving the flat and she left the remaining tenants to find a replacement – churn D. The problem Sturgiss and Gupta issued a claim against Boddy for failing to protect their tenancy deposit in accordance with section 214 of the Housing Act 2004. They argued that each churn created a new AST by way of a surrender and re-grant for which a deposit was notionally paid, but not protected.  Boddy contended that Sturgiss and Gupta’s occupation of the flat amounted to an implied/inferred licence. He argued that, as no tenancy deposit was paid to him in connection with a shorthold tenancy, none of the statutory requirements under the Act arose. Boddy succeeded at trial. The judge found that after the grant of the original 2004 AST, the subsequent occupation of the flat bore the hallmarks of a casual rolling licence. There was no exclusive possession, no definable term and no definable notice period. The judge commented that if he were wrong on that point, the claims would have failed because the statutory scheme only enabled the tenant who had actually paid over the deposit to sue for the statutory penalty. Sturgiss and Gupta appealed. Watch out! As a matter of law, HHJ Luba QC found that Sturgiss and Gupta occupied the flat under a periodic monthly AST. The hallmarks of a tenancy were present; namely, “exclusive occupation, for a term, at a rent”. Churns A to D were the result of a surrender and re-grant. Boddy had himself created the arrangement by which, on the departure of an individual, the flat would be treated as, in effect, re-let to those remaining and the new arrival. This was a surrender and re-grant by operation of law. Superstrike Ltd v Rodrigues [2013] 2 EGLR 91 was authority for the proposition that, in certain circumstances, a deposit taken at the beginning of an original tenancy could be treated as paid again and received again when a new tenancy followed immediately from an earlier one.  Boddy’s own arrangement with his tenants meant he only directly received a single payment of a tenancy deposit despite the churning of tenants. Accordingly, he must be treated as having received a fresh deposit with each new cohort. The alternative would lead to the artificial construct that saw Boddy fixed with an indefinite liability to account to the original tenants in respect of acts for which they were not responsible and had assumed no responsibility.  Given how commonplace flat and house shares have become, landlords should ensure tenancy deposits are properly protected and the remaining statutory requirements of the tenancy deposit scheme complied with at each churn. Elizabeth Dwomoh is a barrister at Lamb Chambers Image © Oliver Dixon/Shutterstock