Deposit Protection for Statutory Periodic Tenancies and Renewals - Superstrike Ltd v Rodrigues 2013
Superstrike Ltd v Rodrigues  EWCA Civ 669 (14 June 2013) is a worrying case which fundamentally changes previous thinking on specific aspects of tenancy deposit legislation and, in particular, the landlord's duties.
This case has been confirmed by changes to legislation by the Deregulation Act 2015.
The landlord granted a tenancy to the tenant on 8 January 2007 for a term of one year less a day at a rent of £606.66 per calendar month. At the same time, the tenant paid a deposit of the same amount.
As tenancy deposit protection legislation took effect on 6 April 2007, the deposit was received prior and therefore didn’t need protection at that time. The landlord never protected the deposit. No new tenancy agreement was granted, and the tenant was entitled to remain under a statutory periodic tenancy as per section 5 Housing Act 1988 after the fixed term ended.
On 22 June 2011, the landlord served a section 21 notice on the tenant, which was defended because when the tenancy became statutory periodic in 2008, that was a new tenancy. As a result, the deposit had, in effect, been paid to the landlord again under the new periodic tenancy and, therefore, should have been protected on or after 8 January 2008 (within 14 days as was required at that time).
The tenant argued that the notice was invalid because the deposit was not protected when the section 21 notice was served in June 2011.
There were two questions. First, when the tenancy became statutory periodic, was that a brand new tenancy and second, if the statutory periodic tenancy is a brand new tenancy, does that trigger a requirement of the landlord to protect the deposit?
We won’t go over the law regarding protection again, and nothing, in this case, turns on the new provisions made by the Localism Act. However, to recap in summary form, as originally drafted in 2007, section 213 Housing Act 2004 required any deposit as from the time when it is received to be protected with an approved tenancy deposit scheme within 14 days.
Where there was a failure to protect, the penalty was three times the deposit plus the return of the original amount. In addition, (as written in 2007) under section 215, no section 21 notice may be given about the tenancy at a time when an authorised scheme is not holding the deposit.
Is a statutory periodic tenancy a ‘new’ tenancy?
In answer to the first question as to whether a statutory periodic tenancy is a brand new tenancy (in the sense that it is equivalent to granting a renewal tenancy), the court said at para 27:
… It is clear from the 1988 Act that what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant’s previous status. I do not see that there can be any doubt as to that. …
Does a statutory periodic tenancy trigger a repayment of the deposit?
The second question follows from this first point. As the statutory periodic tenancy is a new tenancy, the court held that, in effect, the landlord had repaid the deposit to the tenant under the fixed term tenancy and immediately paid a new deposit to the landlord for the new statutory periodic tenancy. This is the same as if a renewal had taken place:
… the new tenancy contained an equivalent provision as to a deposit, in replacement for the provision under the express tenancy … But the legal position after 8 January 2008 must have been that the deposit was held by the landlord as security for the performance of the tenant’s obligations, or for the discharge of any liability of his, arising under or in connection with the new statutory periodic tenancy, not (or not only) in respect of such obligations or liabilities arising under the original fixed term tenancy. How had that come about? It must have been on the basis that the tenant’s right to be credited with the deposit at the end of the fixed period tenancy, as well as his obligation to pay, and the landlord’s right to receive an equivalent deposit under the new statutory periodic tenancy, were treated as satisfied by the landlord continuing to hold the same sum of money as before on the same basis as before but by reference to the new tenancy.
The landlord argued that the requirement to protect a deposit only applies when the deposit is “physically received” after 6 April 2007. By physical receipt, he meant payment by cash, cheque, bank transfer or in some other comparable way, such as occurred in January 2007 when the tenancy was first granted. However, the court didn’t agree (para 36):
I am not persuaded by that argument. The 2004 Act has to be construed in the light of the provisions of the 1988 Act as regards assured shorthold tenancies, including section 5. Once the new statutory periodic tenancy had come into being after the commencement date, a tenant’s deposit being already held, it would be necessary to consider whether and if so how the 2004 Act applied. As I have said already, it must have been the landlord’s position, by then, that it held the sum of £606.66 as a deposit as security for the performance of the tenant’s obligations, or for the discharge of any liability of the tenant, arising under or in connection with the new tenancy. That could only be the correct legal position if that sum of money was to be treated as having been paid pursuant to the tenant’s obligation under the periodic tenancy to provide a deposit. That obligation only arose on the expiry of the fixed term tenancy, so the payment at the beginning of that fixed term cannot have given rise to the position which obtained once the fixed term had expired. Something must have happened in January 2008 which led to the result that the deposit was held in relation to the new tenancy. That something could have been either an actual (or, as Mr Bhose put it, physical) payment (but none took place in this instance) or something which amounted to payment.
The landlord was refused possession because on 8 January 2008. It was regarded that he had received a new deposit from the tenant for the new tenancy created by the Housing Act 1988. As this deposit was not protected, section 215 Housing Act 2004 prohibited the service of the notice that the landlord served in 2011, and as a result, the notice was of no effect.
This is a seriously worrying position for landlords, although perhaps there aren’t as many tenancies that will be affected as first thought. For this case to apply, a tenant must have moved in before 6 April 2007 and gone statutory periodic after 6 April 2007. In addition, those tenants must still be in occupation now. If that is the case, the deposit must be returned before any section 21 notice can be served.
Even more worryingly, though, is that the court left open the possibility that ‘all’ deposits taken before 2007 where the tenant is still in occupation may need returning before a section 21 notice can be served (paras 43 - 45):
… Towards the end of a further skeleton argument lodged thereafter by Mr Westgate and Mr Chataway another point was taken, namely that even if the provisions of section 213 had not applied to the deposit as a result of the creation of the statutory periodic tenancy in 2008, nevertheless the terms of section 215(1) were such that it applies so as to prevent a section 21 notice from being served whenever a deposit is held which is not held in accordance with an authorised scheme. I can see the basis for this argument on the literal words of the section. If it is right, it would have had extensive consequences when the legislation first came into force, since it would have required any deposit to be put into an authorised scheme before the landlord could serve a section 21 notice after the commencement date, even if there would have been no other obligation to do so under section 213. It is not clear how significant would be the effect of this point now, six years after the provisions first came into force. Interesting as the point is, it is not necessary to decide it for the purposes of determining this appeal. For that reason, I prefer not to deal with it but to leave it to be decided in a case in which it matters, if one such were to arise.
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Deposits and Tenancy Deposit Schemes
Many landlords take a deposit from tenants to hold for the duration of the tenancy. When the tenant moves out, this is returned to the tenant less any deductions permitted: typically for damage (above fair wear and tear), additional cleaning, and cover any outstanding rent. Note: deposits can only be withheld if stipulated what the deposit is being held against in the contract.