It was widely assumed that the legislation requiring landlords to protect tenancy deposits with an authorised scheme applied only to assured shorthold tenancies created on or after 6 April 2007. However, Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 confirmed that the legislation also applies to tenancies created before 6 April 2007 that have “rolled over” to become statutory periodic tenancies since the legislation came into force because, if a landlord retains a deposit previously paid by the tenant, it must be treated as having been paid again in respect of the performance of the tenant’s obligations under the new tenancy.
The decision sent ripples through the property industry. There are two sanctions for failure to comply with the legislation. Landlords will be liable for 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 a tenancy on the ground that it is an assured shorthold tenancy, which the landlord wants to end.
Superstrike’s tenant persuaded the court that the landlord’s section 21 notice was invalid because the deposit was not being held in accordance with an authorised tenancy deposit scheme, but did not ask the court to impose a financial penalty for non-compliance. However, the property industry quickly realised that landlords who have not re-served prescribed information on tenants in similar circumstances, confirming that their deposits remain protected by an authorised scheme, might find themselves liable for financial penalties as well.
Does Ng v Charalambous [2014] EWCA Civ 1604; [2014] PLSCS 357 have similar implications for landlords? In Ng, the Court of Appeal upheld the tenants’ claim that a section 21 notice served in 2012 was invalid because the landlord had never protected their deposit. Their tenancy was granted in 2002 and became a statutory periodic tenancy in 2005, before the legislation requiring landlords to protect tenancy deposits came into force. If one of the sanctions for failing to protect the deposit applied, could the landlord be required to pay a financial penalty too?
The Court of Appeal thought not. The legislation provides that “no section 21 notice may be given… at a time when… the deposit is not being held in accordance with an authorised scheme” and the court considered that the facts “fell squarely within its terms, straightforwardly read”. However, their Lordships were prepared to accept that the landlord had not been required to protect the deposit and provide the tenants with the prescribed information, confirming that the deposit had been protected by an approved scheme, on the date that she received the deposit, or when the statutory periodic tenancy arose because – unlike Superstrike – the legislation was not then in force. Therefore, she was not in breach of the statutory provisions requiring the imposition of a financial penalty.
The legislation was never easy to interpret. It became more complex as a result of the amendments brought into force by Article 8 of the Localism Act 2011 (Commencement No. 4 and Transitional, Transitory and Saving Provisions) Order 2012, and could become more complex still as a result of amendments contained in clause 31 of the Deregulation Bill now progressing through Parliament. Has the time come a total rewrite – in modern, plain English?
Allyson Colby is a property law consultant
