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More deposit nightmares

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Now three years after the introduction of tenancy deposit schemes and just over 12 months after the most recent changes came into effect, tenancy deposits are set to cause more trouble for landlords.

The recent Court of Appeal decision in the case of Superstrike Ltd and Marino Rodrigues seem set to amount to a landmark case.

The facts are pretty commonplace in that they involved an assured shorthold tenancy agreement granted to the tenant for 12 months. After the initial 12 months, the tenant remained in occupation as a statutory periodic tenant on equivalent terms.

In 2011 the landlord served a Section 21 notice requiring possession. After a series of hearings and appeals the case landed in the Court of Appeal with the underlying issue being whether a statutory periodic tenancy amounted to a new tenancy and whether the requirements of the tenancy deposit scheme had been complied with.

At the time the tenancy had been created there were no requirements to protect the tenant’s deposit. At the time the tenancy transferred into a periodic tenancy the legislation on tenancy deposit schemes had come into force.

It was held that a statutory periodic tenancy creates a new tenancy and so the landlord was obliged to protect the tenant’s deposit. Here the deposit had not been protected and the landlord on that basis was not entitled to possession.

It is easy to read this on the lines of it having limited impact only on tenancies in existence before the start of the tenancy deposit schemes. However the impact of this judgment appears to be far more wide-ranging. For example a landlord who allows a tenant to have a periodic tenancy but he does not expressly deal with the protection of the deposit at such time may struggle to obtain possession.  Effectively a landlord should re-protect the deposit once a stationary periodic tenancy has come into force.

This seems to be a nonsense and ripe for further appeal. Nevertheless in the interim, landlords should tread carefully and there are some steps which can be taken now for protection.

  1. Include provision in the assured shorthold tenancy agreement for the deposit to be held in the same manner if the fixed term later becomes a periodic tenancy;
  2. Resend the prescribed information to the tenant when the periodic tenancy comes into force;
  3. Ensure Section 21 notices are served at the appropriate time, i.e. after the deposit has been predicted under either a fixed or periodic term and after the prescribed information has been given.

Stephensons provide both standard and bespoke assured shorthold tenancy documents which have been redrafted in light of this decision.

By commercial Partner, Louise Hebborn