[Photo by oatsy40 from the Flickr pool]
It is no exaggeration to say that the case of Superstrike Ltd. v Rodrigues [2013] EWCA Civ 669 has drastically shaken up the way that Assured Shorthold Tenancy deposits are protected. The requirement to protect deposits under a Tenancy Deposit Scheme arose with the Housing Act 2004, specifically section 212, and any deposit received on or after 6th April 2007 has had to be protected in one of the authorised schemes. The four authorised schemes offered different types of protection: either an insurance type scheme under which they would insure the deposit for a fee, or else a custodial scheme whereby they would hold the deposit on account. Failure to comply with the new requirements would mean a landlord could be liable for sanctions as prescribed by section 215 of the act: The tenants could claim damages of up to three times the value of the deposit, and any section 21 notice served while the deposit was not protected would not have been validly served on the tenants. These remedies are open to the tenant where the landlord has in anyway failed to comply with the initial requirements of the tenancy deposit scheme, i.e. protecting the deposit and serving on the tenant the prescribed information relating to the deposit within 30 days of receipt of the deposit by the landlord or his agent.
The last case to really shake up the tenancy deposit protection regime was Tiensia v Vision Enterprises Ltd. (t/a Universal Estates)[2010] EWCA Civ 1224. This case was felt to undermine the remedies available to a tenant against a landlord who failed to protect their deposit, and indeed to neuter the whole purpose of the scheme. The government felt that this went too far in undermining the efficacy of the Housing Act 2004 in protecting tenants and so introduced reforms brought in by the Localism Act 2011. These reforms meant that a landlord will be strictly liable for the damages specified if he fails to protect the tenants deposit within 30 days of receiving it, and will also be strictly liable if he fails to provide the prescribed information within this timescale.
Of particular worry to landlords though are not the penalties imposed but the ambiguities in the drafting of the legislation. In attempting to roll back the effect of Tiensia, the Localism Act 2011 has made it very uncertain for landlords as to how a deposit should be protected, as was evidenced in the case above, usually referred to as Superstrike. In this case, a landlord let a property to a tenant under a fixed term tenancy and the landlord took a deposit from the tenant prior to April 2007 and so it was not a requirement to protect the deposit at that time. At the end of the fixed term of the tenancy, the tenant remained in the property on a periodic tenancy. The landlord did not re-send the prescribed information, nor re-protect the deposit. The Court of appeal found that the periodic tenancy which arose at the end of the fixed term was a new tenancy for the purposes of protecting the deposit. The landlord therefore was in breach of his requirement to protect the deposit and serve the prescribed information on the tenants within 30 days of the start of the tenancy or receipt of the deposit monies.
Because of this breach, the landlord would not be able to serve a section 21 notice on the tenant, and could be liable for three times the deposit sum in damages to the tenant, despite the fact that the tenant moved in prior to April 2007 and so the landlord did not think that tenancy deposit scheme rules applied.
This far-reaching judgment is of such impact to tenancy deposit scheme rules that already MyDeposits.co.uk is considering changing its rules on protecting deposit by insurance, although cynics would suggest that their proposed changes are an opportunity to generate more fee income. The effects that this decision will have on landlord and tenant practitioners is also not yet clear, but it is sure to be extensive. Every practitioner should be watching this case with interest, if not outright worry.
Practically, any time there is any change in an assured shorthold tenancy, the landlord should think about re-sending the prescribed information and at least contacting their protection scheme. Equally, when serving section 21 notices, lawyers should be more careful than ever about making sure the deposit protection scheme requirements have been complied with.
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