Residential Tenancy Deposit Protection- 6 Years On...

A recent Court of Appeal decision has reiterated a warning (hopefully) given to residential landlords in England and Wales regularly, namely that a tenant’s security deposit must be adequately protected in a suitable scheme prior to commencing any formal steps for recovering possession of property let under an assured shorthold tenancy (“AST”).

Facts

The case of Superstrike Limited v Rodrigues involved a slightly technical issue, in that the original AST commenced prior to the introduction of the compulsory deposit protection provisions of the Housing Act 2004, which came into force on 6 April 2007. However, the original AST expired after 6 April 2007, following which the tenant remained in occupation under a periodic tenancy, running from month to month and terminable on 2 clear months’ notice. The tenant’s deposit was not placed into a tenancy deposit scheme during the original AST or periodic tenancy period. The Landlord had obtained a possession order based on service of the section 21 Notice served during the periodic tenancy period, and the tenant sought to overturn that order on the basis that the section 21 notice was invalid due to the landlord’s failure to protect his security deposit correctly.

Issue

The issue before the court was whether the notice was valid bearing in mind that the tenant’s deposit was not in a suitable deposit scheme at the time it was served, even though the AST commenced prior to the introduction of compulsory deposit protection under the Housing Act 2004.

Decision

The Court of Appeal held that the notice was not validly served, as the commencement of the periodic tenancy after 6 April 2007 triggered the requirement of deposit protection under the 2004 Act (see sections 213 and 215 in particular). Accordingly, the landlord was not entitled to the possession order previously obtained.

Effect

The immediate effect on the landlord in Superstrike is that a fresh section 21 notice will need to be served, once the tenant’s security deposit has been placed into a suitable protection scheme (if it has not been already). The Landlord may then commence possession proceedings once that notice has expired.

However, the greatest effect on the landlord will be of a financial nature. This case was heard in the Court of Appeal, where each party was represented by a team of solicitors and barristers (both junior Counsel and leading Counsel). It is therefore likely that each party’s costs exceeded £20,000. Bearing in mind that the landlord could have consented to the possession order being set aside, protected the deposit and re-commenced the formal process as described above, it is likely that this case was progressed on a point of principle rather than any urgent need to regain possession of the premises. Unfortunately, litigating on a point of principal can clearly be an expensive habit.

To avoid finding yourself in a situation, always ensure that your tenant’s deposit is protected in an approved deposit protection scheme. If you let your property with the assistance of letting agents, they are usually happy to assist you with this. Furthermore, if you have an existing tenant and have not correctly protected their deposit, be sure to do so urgently so that you can take any formal steps for recovery of the property without delay. The Deposit Protection Service offers a user-friendly facility on their website at www.depositprotection.com. At JCP, we offer various fixed-fee residential possession packages, ranging from service of notice to conduct of possession proceedings, in all aspects of which we highlight any issues relating to deposit protection.