Statutory rules aimed at safeguarding residential tenants’ deposits came into force on 6 April 2007 in England and Wales. As a result, deposits paid by assured shorthold tenants must be protected with an approved scheme and tenants must be sent prescribed information confirming that this has been done.
Landlords who fail to comply with the legislation are liable to pay financial penalties and, if the deposit is not protected, cannot serve effective section 21 notices on their tenants.
This means that they will be unable to give two months’ notice to terminate the tenancy on the ground that it is an assured shorthold tenancy the landlord wants to end (unless the landlord returns the deposit to the tenant or until any litigation relating to the deposit has been resolved).
The legislation has had a bumpy ride through the courts. The government has already had to amend it once and plans further amendments via the Deregulation Bill, which is currently making its way through parliament.
The Court of Appeal decision in Ng v Charalambous [2014] EWCA Civ 1604; [2014] PLSCS 357 exposes an issue parliament might wish to consider before the amendments reach the statute book.
It had been widely assumed that the tenancy deposit scheme applies to assured shorthold tenancies created on or after 6 April 2007. However, the Court of Appeal decision in Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 confirmed that the legislation applies to assured shorthold tenancies created before 6 April 2007, which have since “rolled over” to become statutory periodic tenancies – even though this was contrary to government guidance.
Ng goes further. The litigation concerned a tenancy that was granted in 2002 and became a statutory periodic tenancy on 17 August 2005. The landlord served a section 21 notice in 2012, but the tenants claimed that the notice was invalid because the landlord had failed to protect their deposit with one of the statutory schemes. Consequently, the Court of Appeal had to decide whether the legislation applies to deposits paid by assured shorthold tenants before the introduction of the tenancy deposit scheme.
The landlord argued that, even if the deposit was treated as having been notionally paid on the creation of the statutory periodic tenancy, that still pre-dated the legislation in 2007. But the court upheld the tenants’ claim. It ruled that the legislation applies to tenancy deposits that have “been paid in connection with a shorthold tenancy.” The statutory provisions refer to a past event, not a prospective one, and do not state that they apply only to deposits paid after 6 April 2007.
The court rejected the argument that this would mean that the legislation would operate retrospectively. It observed that the statutory provisions deal with section 21 notices served after the legislation came into force, and not beforehand. The court took the view that its ruling affected the landlord’s procedural rights, as opposed to her substantive rights, and suggested that landlords should clear the path for the service of a section 21 notice by complying with the legislation first.
Will parliament make further changes to the provisions in the Deregulation Bill (which deals with the impact of Superstrike) as a result of this decision? We must wait and see.
Allyson Colby is a property law consultant
