Superstrike v Rodrigues  EWCA Civ 669
You might have thought that after the corrections made to the Deposit Protection legislation by the Localism Act 2011 and the recent case of Ayannuga v Swindells  EWCA Civ 1789 matters would have settled down. You would have been wrong, and the CA has just tossed a particularly large and unpredictable cat among the legal pigeons in the form of the Superstrike case.
Very briefly, the matter concerns the protection of deposits paid for Assured Shorthold Tenancies (ASTs). From March 2007 the Housing Act 2004 requires these to be protected by the landlord by using one of several approved schemes, and for the tenants to be given prescribed information confirming this and setting out the way to use the free arbitration system included in the deal. This was a good idea in general, but very badly executed, as the legislation was full of enormous holes, and these had to be plugged by s184 of the Localism Act 2011, which took effect from 6th April 2012. I have written about this before in November 2012 https://alanlodge.wordpress.com/2012/11/09/more-trouble-with-deposits/ and indeed in March 2012 https://alanlodge.wordpress.com/2012/03/12/all-change-for-deposits/ but it still won’t go away.
The facts are remarkably simple. In January 2007 Mr Rodrigues entered into an AST with the Landlords. It was for a fixed term of 6 months. He paid a deposit of one month’s rent, £600 odd, which was not protected as the compulsory scheme did not come into effect until 4 months later, in April 2007. When the fixed term ended Mr Rodrigues stayed as a statutory periodic tenant. All went well until 22nd June 2011 when the Landlord served a s21 notice requiring possession in 2 months, and possession proceedings followed.
By the time matters got to the CA (the Landlord having lost before the District Judge and won before the Circuit Judge on appeal) the issue was whether the deposit was “received” after the scheme came into force in April 2007, and so should have been protected. Clearly it hadn’t been physically received – it was paid in January 2007 – but when the fixed term came to an end a periodic tenancy arose and the deposit was being used in relation to that. So in a sense it had been received then.
Lloyd LJ in the CA started by deciding that the periodic tenancy that arose at the end of the fixed term under s5 Housing Act 1988 was a new tenancy, and not just a continuation of the fixed term. The wording of the section was quite clear.
The court then turned to the deposit and decided that it was as a matter of law paid at that point, because it had to be transferred from the old tenancy to the new one. Otherwise it couldn’t be used to cover liabilities under the new tenancy, as it was clearly intended to do. So, although the parties clearly hadn’t discussed matters in this way, and indeed almost certainly had not thought about the point at all:
The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.
Hence a payment had been received, the protection was triggered, and the deposit had to be protected and the prescribed information served. As it hadn’t been then s215 Housing Act 2004 meant that no valid s 21 notice could be served, and the claim for possession failed. Furthermore the Landlords had laid themselves open to a claim for the return of the deposit plus a penalty of up to 3 times the deposit under s214 HA 2004, should Mr Rodrigues choose to make one.
The case related to an AST dating from 2007 and given the mobility of many tenants there are only a limited number of these still around. If you have one and you haven’t protected the deposit then you have a problem, and will need to return the deposit in full (or subject to any deduction agreed by the tenant) in order to make use of the escape clause under s215 (2A). If you have protected it and not given the appropriate prescribed information then you need to do so before the s21 notice can be served.
In either case you can still have a claim against you for penalties, because you will be many years out of time and although the limit was increased from 14 days of receipt it is still only 30 days of receipt, so you are very late indeed.
However, the real bombshell is that if the periodic tenancy that follows all fixed AST tenancies is a new tenancy, and the payment is deemed to be made by way of set-off as the CA has now decided, then all ASTs have the same problem. If you receive a deposit in say May 2012 and protect it right away and pass over the information in plenty of time you will have to do this again in November 2012 when the fixed term expires. And you probably haven’t because you didn’t realise that you needed to. So if you are thinking of serving a s21 notice think again.
Most of the schemes should continue to protect the deposit once the periodic tenancy kicks in, but very few landlords will have bothered to re-serve the information, when nothing has changed. And if you haven’t then you can’t serve a s21 notice until you do so, which will remind the tenant, who isn’t feeling too pleased with you at this point as you are trying to evict them, that you are out of time and that he can ask the court for the windfall of the penalties.
This is the bombshell – it affects virtually all ASTs and there is no real solution open to landlords except to hope. To say nothing of the thousands of possession actions that could be brought to a grinding halt, and the prospect of a multi-million pound series of claims being brought by tenants (egged on by litigation solicitors who are presently falling on hard times) who had an AST in the last 6 years and didn’t get two sets of information.
Don’t expect too much sympathy from the CA. Lloyd LJ said to the hapless landlord’s counsel in Superstrike:
I am willing to accept that the need to comply may not have been foreseen. Unfortunately, several points under this legislation turned out not to be as may have been expected or intended.
There are however some possibilities:
- Somebody may appeal to the Supreme Court. But I haven’t heard anything about this, and the cost will be a serious discouragement.
- Most deposits should be protected. The protection schemes are considering their position and promise to release a joint statement shortly. So the only problem may relate to the information.
- And a court may be more sympathetic to the argument that if information has been supplied and hasn’t changed then does it need to be given again (although s213(6) does require it to be given “within the period of  days beginning with the date on which the deposit is received by the landlord.”) In Superstrike the CA pointed out that the deposit had not been protected at all, and this was a basic part of the requirement.
- Landlords can consider bringing claims on other grounds – say arrears of rent. This is not barred by the 2004 Act, although a wise tenant would counter claim for the penalties and set them off against the rent.
In the longer term the fiasco may be tidied up yet again by legislation. This government is unlikely to be pleased with the prospect of a new “whiplash” culture discouraging the supply of homes for rent, and making more work for struggling lawyers.
Failing this there are various ways forward:
- Bite the bullet, re-serve the information, defend the claims and hope for the best in the short term.
- In future serve the information twice. And hope for the best again.
- Don’t take deposits in the future – insure if the tenant’s credit is good enough, or get a guarantor in many more cases.
- Don’t have a fixed term at all in the AST. This has not been strictly necessary since 1996 (it was previously) but as s21 can’t be used until the tenancy is 6 months old it remains almost universal. But if you start with a monthly periodic tenancy this just runs on in the normal way, and there is never any ending of the tenancy and so no statutory periodic tenancy, and no requirement for any deposit to be transferred in this way. You just have to accept (and tell the tenant if you like by way of a note of the law set out on the tenancy agreement) that no order for possession can take effect until the tenancy is 6 months old.
But the way things have gone I wouldn’t be surprised if this problem comes back to bite us all before too long.
There are more detailed analyses of Superstrike in the Nearly Legal Blog http://nearlylegal.co.uk/blog/2013/06/deposit-received-one-way-or-another/ and the Painsmith L & T Blog http://blog.painsmith.co.uk/2013/06/17/another-deposit-case/ and on Tessa Shepperson’s Landlord Law Blog http://www.landlordlawblog.co.uk/2013/06/17/new-case-on-tenancy-deposits-received-before-april/