Article Posted -
20 Jun 2013

On 14 June 2013 Lord Justice Lloyd delivered his judgement on an appeal from the Wandsworth County Court in the case of Superstrike Ltd vs Marino Rodrigues. Since its publication there has been a lot of discussion on the online property forums and at local NLA meetings about the potential impact that this judgement may have on landlords.

Unfortunately, much of this commentary has not fully understood the facts of the case or the way in which a judge constructs an appeal judgement. There is a distinct need for calm and greater clarity about this case. To this end, the NLA has been in discussion with legal professionals and the officials responsible for tenancy deposit protection (TDP) legislation within the Department for Communities and Local Government (DCLG).

It is important to understand that appeal judges only consider the case presented to them, not a similar set of circumstances, or a variation on a theme. The precedent they set is therefore only applicable to cases subject to the same set of circumstances. This fact is crucial in this instance as the case of Superstrike Ltd vs Rodrigues is not representative of all landlords or private tenancies.

The specifics are as follows:

-          The tenancy (an AST) began in January 2007, before the 6 April introduction of TDP

-          The tenancy persisted, on a statutory period basis, without renewal or changes from January 2008

-          No deposit was ever protected in relation to this tenancy, as it was received prior to this becoming a requirement

-          A Section 21 notice was served in June 2011 to end the periodic tenancy

The Judgement concludes:

-          That a statutory periodic tenancy is a new and distinct tenancy, not a continuation of the tenant’s previous status.

-          The legal position was that the deposit held by the landlord at the end of the fixed term was deemed to have been received in relation to the periodic tenancy in January 2008

-          As it was received in January 2008, after the introduction of TDP, it should have been protected.

-          As the landlord did not comply with Section 213 of the Housing Act 2004, they did not have the right to serve a Section 21. This rules the Section 21 invalid.

What it DOES NOT conclude:

-          The ruling does not apply to any deposits taken after 6 April 2007. i.e. it does not introduce a requirement to re-protect deposits held lawfully in accordance with a TDP scheme’s rules when a tenancy becomes periodic. 

-          The ruling does not look into financial sanctions; this case only focused on whether the landlord’s Section 21 notice was valid.

-          The ruling does not look into the need to provide prescribed information .

What does all of this mean?

-          If you have any tenancies which began pre-6 April 2007 and became periodic after 6 April 2007, for which you hold a deposit which was not protected, you may not be able to issue a Section 21 notice.

-          If you do not have any tenancies which match this description, this judgement should have no impact on you whatsoever. Depending on the TDP scheme used, you may receive correspondence in the near future asking you to confirm the status of tenancies for which the fixed term has ended but a request to unprotect the deposit has not been received.

-          Likewise, in the future you may be asked to let the scheme provider know when tenancies become periodic.

 

If I have pre-2007 tenancies like this, what should I do?

There is no simple answer to that question. Due to the nature of appeals, only the exact circumstances of the particular case in question are examined. The two ways to mitigate the risk of being caught out by this precedent are:

(1)    Return the deposit. This should remove the risk of a future  Section 21 being deemed invalid and is implied by the judgement. However, Justice Lloyd deliberately reserves judgement on this matter.

(2)    Protect the deposit. Likewise this should show intention to comply with the law and remove the risk. However, given the recent amendment to Section 215 of the Housing Act 2004, this may not be sufficient to avoid sanctions. Only a further legal case could determine this.

There is a third option available to landlords affected, which is not intended to mitigate risk and may not be advisable, but could be a valid course none the less, and that is:

‘wait and see’

It is entirely possible that this case will be taken to the Supreme Court, which could overturn the judgement. The NLA is keen to speak to the landlord in this case and is seeking legal advice to determine what options may be available to challenge the decision.

Furthermore, we are keen to impress upon ministers at DCLG that it has a responsibility to regain control over this legislation and should act swiftly to amend the Housing Act 2004 to remove this uncertainty – in the same way it did in 2011 following the Tiensia case.

We will provide regular updates on this matter as soon as more information is available. 

 

Comments

Submitted by 84016 on 27 July 2013 - 10:22am

Replying to 87140 . . . . . . . . . Sorry, but I believe you are wrong. You say "opening the flood gates to litigants is quite another. I would imagine there will be a grace period, maybe 30 days, for you to re-protect the deposits". The problem is that this ruling states quite categorically that when the AST rolls over into a SPT, then the deposit is deemed to have been refunded for the AST and taken again for the SPT. That much is very clear. . . . . . . . . We now have to look at what the law says. It is also very clear - when you take a deposit you **MUST** do certain things within certain timescales. That means protecting the deposit AND informing the tenant of certain details. . . . . . . . . . . The problem is that most of us did not re-protect the deposit when the AST changed to an SPT, and the timescales allowed for doing that have long passed. Not only that, but AIUI past tenants can also sue - even though they have long since left and had their deposits back ! The limit for this is 6 years (that's a general limit on civil action). . . . . . So think back, how many tenancies have you had where an AST rolled over into an SPT within the last 6 years - and now think what 3x the deposit would come to in those cases. I've done the sums, and the total deposits that would apply to in my case would be 2.5k split across 5 tenancies - so there's a potential liability of up to 7.5k should all of them take this up. I'm not too worried about most of them, but I do rather think that I have one past tenant who would think nothing of trying it on for £1200 of "free money" (they're trying it on with a neighbour for what I believe to be a fraudulent vehicle damage claim). . . . . . . . . . Going forwards the answer is fairly simple, if we re-protect the deposit when the AST rolls over into an SPT and provide the relevant information to the tenant then we are OK - but that will only work for ASTs that are still in their initial fixed period or have expired within the last couple of weeks (to give us time to re-protect and notify within the timescales allowed).

Submitted by 87140 on 13 July 2013 - 3:47pm

I disagree - I think this assessment is spot on.

Saying that the tenancy is a new tenancy when it has gone periodic is one thing, opening the flood gates to litigants is quite another. I would imagine there will be a grace period, maybe 30 days, for you to re-protect the deposits

All said and done I don't personally believer this will have much impact and if it does, as I say you will just need to re-protect your deposits - Lets hope the DPS have the facilities to do this!

Submitted by 84016 on 28 June 2013 - 3:00pm

sage9 is right, the NLA analysis is fundamentally flawed. There is no getting away from it, whatever the circumstances the judges have ruled that the statutory periodic tenancy **is** a different tenancy to the original fixed period tenancy, **and** that the deposit is deemed to have been refunded and retaken on the changeover. If that is the case and isn't overturned, then this means the ruling affects every single one of us who takes a deposit (which I suspect is almost all of us). Given the amount of alarm this is (rightly in my opinion), I rather think that all sides will be keen to resolve the issue. Personally I've written to my MP, expressing concern that this exposes me to many thousands of pounds of potential liability given that any tenant from the last 6 years can now claim damages of up to 3x the deposit (and one of my past tenants wouldn't be above that if he knew !), and asking him to ask the minister responsible what he's going to do to fix it. Trust me, nothing gets a minister moving faster than MPs from all over the country asking how he's going to fix something - and I suggest that you all write to your MP. In a completely different context, some years ago I had a conversation with a fellow club member who's professional life had progressed to the point where he was on speaking terms with ministers. He told us that getting just 50 letters from concerned constituents via their MPs was considered (in my words) a "sh*t storm" of feedback.

Submitted by 77286 on 28 June 2013 - 2:46pm

A broader comment is I think in order. We face both as landlords and as tenants a ludicrous babble of ill conceived and ill drafted legislation, perverse and ambiguous judgements and political meddling in the contracting between consenting adults.

All of this is supposed to protect someone - but it does nothing of the sort. It simply drives up the rents of good moral tenants, marginalises tenants who are at the border-zones, makes short term rentals inconceivable, reduces the options for mobile workers, and leads to a less dynamic, less flexible flexible and expensive rental market. It creates kickbacks for a variety of useless middle men - money which comes straight from the vulnerable that the legislation is purportedly there to protect.

The observed consequences of poor regulation are always the same - the exclusion of certain groups, the establishment of mediocre performance standards, and fraud.

As Plato puts it - This and no other is the root from which a tyrant springs; when he first appears he is a protector.
(circa 400 B.C).

Submitted by 76839 on 21 June 2013 - 5:55pm

[SAME POSTING TRYING TO FORMAT BETTER]

I think this analysis from the NLA is fundamentally flawed.

When a case goes to the Court of Appeal they identify the relevant law and then look to the facts of the case and apply the law.

In this case the judges have decided that a statutory periodic tenancy that follows a fixed period tenancy is a new agreement. They have also ruled that on the creation of this new tenancy the landlord is, in effect, deemed to receive the deposit a second time.

Having decided the law the judges then looked at the facts of the case which we probably all can follow and understand.

Whilst it is right to say the ruling cannot be assumed to apply to any case where the facts of the case are different, it is not correct to say that the decision on how the law operates is restricted.

In other words, there is no reason whatsoever why we can or should assume that there is any difference in law when an original fixed turn tenancy turns periodic, just because that original agreement was dated before or after 6 April 2007.

Where there is no doubt is that the judges did not consider what the position would be if the deposit had already been protected. They did not consider this because they did not have to as the tenancy in the actual case commenced before 6 April 2007. So we have a new interpretation of the law but no clue how it might apply to most live cases.

What is agreed is that there is little to be gained by any "knee jerk" reaction to the ruling. We can only wait and see what happens.

For landlords as a whole, for several reasons there is little point in taking this case to the Supreme Court.

1 First of all the facts are different to those that most are concerned about.

2 The Supreme Court cannot change the law.

3 It takes too long to get a ruling.

Really, this matter can only be solved effectively and efficiently by a retrospective amendment to the legislation.

If anyone doubts the above, the solution is simple. Contact mydeposits and ask them to confirm in writing that following this ruling they still agree the original protection remains valid when a tenancy turns periodic. Don't hold your breathe.

Submitted by 76839 on 21 June 2013 - 5:52pm

I think this analysis from the NLA is fundamentally flawed.

When a case goes to the Court of Appeal they identify the relevant law and then look to the facts of the case and apply the law.

In this case the judges have decided that a statutory periodic tenancy that follows a fixed period tenancy is a new agreement. They have also ruled that on the creation of this new tenancy the landlord is, in effect, deemed to receive the deposit a second time.

Having decided the law the judges then looked at the facts of the case which we probably all can follow and understand.

Whilst it is right to say the ruling cannot be assumed to apply to any case where the facts of the case are different, it is not correct to say that the decision on how the law operates is restricted.

In other words, there is no reason whatsoever why we can or should assume that there is any difference in law when an original fixed turn tenancy turns periodic, just because that original agreement was dated before or after 6 April 2007.

Where there is no doubt is that the judges did not consider what the position would be if the deposit had already been protected. They did not consider this because they did not have to as the tenancy in the actual case commenced before 6 April 2007. So we have a new interpretation of the law but no clue how it might apply to most live cases.

What is agreed is that there is little to be gained by any "knee jerk" reaction to the ruling. We can only wait and see what happens.

For landlords as a whole, for several reasons there is little point in taking this case to the Supreme Court.

1 First of all the facts are different to those that most are concerned about.

2 The Supreme Court cannot change the law.

3 It takes too long to get a ruling.

Really, this matter can only be solved effectively and efficiently by a retrospective amendment to the legislation.

If anyone doubts the above, the solution is simple. Contact mydeposits and ask them to confirm in writing that following this ruling they still agree the original protection remains valid when a tenancy turns periodic. Don't hold your breathe.

Submitted by 12019 on 21 June 2013 - 2:02pm

This judgement appears perverse and contrary to good 'common sense' and even the spirit of the law. Let's hope the Supreme Court can bring some clarity.

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