Superstrike V Rodrigues - Updated by Derugulation Bill March 2015

27th March 2015 - Legal Update - Please note whilst some parts of the Superstrike case law below  are superseded [nullified] by components of the Deregulation Bill parts of Superstrike will continue to have a bearing in terms of continuity of tenure.

THE Deregulation Bill CLARIFIES Deposit Protection Compliance

 
 

-----------------       As was pre change in law --------------------- 

 
Major consequences are expected for the private rented industry with the latest Court of Appeal judgement that opens up landlords to legal action from tenants because of unwittingly breaking the law on tenancy deposit protection.

The case that the judgement was passed is “Superstrike V Rodrigues a Court of Appeal Ruling”

KEY POINT 1 TENANCIES PRE 2007 :

Where a deposit was taken before 2007 but became a statutory periodic after April 2007 a new Tenancy [contract] was created by default ; therefore ANY deposit monies became subject to Deposit Protection requirement ; irrespective of the fact that no new documentation was created.
  • This is because the Judge upheld Periodic Tenancies as defined by Section 5 security of tenure within the 1988 Housing Act are indeed new Tenancies. Example section 5 - 3e of the Act states -  "fixed term tenancy immediately before it came to an end."
  • If a deposit was received before 6 April 2007and the periodic tenancy commenced after 6 April 2007, the deposit MUST be protected otherwise the tenant cannot be evicted using the section 21 process.

KEY POINT 2 AFFECTING ALL PERIODIC TENANCIES:

The ramifications of this ruling imply that ALL FIXED TERM tenancies coming to an end create a NEW contract because a Statutory Periodic Tenancy arose ; so by default the deposit should treated as a new tenancy and the prescribed information requirements of deposit protection there after applies, ie re-issue prescribed information within 30 days or be fined and invalidate one’s right to evict using the section 21 (this would be a breach of question 7 court application form).
  • The Court of Appeal ruled that a new tenancy had been created, under the 1988 Housing Act, and that the landlord had therefore received a deposit which then, by law, had to be protected. It was therefore held that the landlord was not entitled to have served a Section 21 notice and was not entitled to possession.
  • Where there is “greyness “ is that in the circumstances of this case there was no prior deposit protection in situ whereas most tenancies where a deposit was taken after 2007 the deposit would be protected by a deposit scheme. So the question arises would the previous protection remain valid
  • Provision of deposit schemes are governed by Schedule 10 of the 2004 Housing Act – and The Act refers to the end of a tenancy and not the end of singular Tenancy Agreement .

The ruling could materially change the current face of deposit protection and the Deposit Schemes.

  • The Deposit Schemes are reticent to provide immediate guidance taking the stance that “landlords and lettings agents should take their own legal advice”.  The Deposit Schemes have stated they will consult the Department for Communities and Local Government (DCLG) and issue a statement at a later stage.

In the interim, there is an argument that Landlords and Agents should consider protecting themselves by taking a rear-guard action.

Legislation (2004 Housing Act as revised by the Localism Act 2011 ) requires that Tenants deposits remain protected at all times – and to be frank if held in a scheme correctly then the Deposit remains protected so this should not be an issue. The case law does not answer this as it only creates a definition that a Periodic is a new Tenancy and not a continuance.

Central to the judgement is that tenants whose deposits were not re-protected when their fixed term tenancy rolled over into a statutory periodic tenancy, may now be able to claim against their landlord. Tenants could argue that any eviction was unlawful, and may also be able to claim back their original deposits plus a penalty.
 
Where the complexity is is in the definition of fines and penalties for non-compliance of protecting a deposit – Many people refer to Schedules 213 up to and including 215 of the 2004 Housing Act, but forget these were updated within the amendments introduced in the Localism Act 2011, implemented in April 2012.
The key issue as the case rules (unless appealed by a Higher Court) – a statutory periodic tenancy is not a continuation of a fixed term tenancy but a new tenancy.

The questions raised are

 
a) As a statutory periodic is now considered a new tenancy, should a new deposit protection have been obtained or purchased within 30 days or does the fact that the previous fixed term tenancy deposit protection remained in situ mean that the deposit remains lawfully protected ?
  • This is something only the deposit schemes can answer for they provided the deposit scheme in accordance with both the tender document and Schedule 10 of the 2004 Housing Act – covers provisions relating to tenancy deposit schemes.
  • In all fairness, Schedule 10 itself refers to the end of a tenancy not the end of an agreement. So this in itself would imply the deposit protection remains intact, for even if a Statutory periodic is introduced as a new tenancy agreement, the Tenancy itself had not been ended so the existing deposit protection should suffice.
b) As a new Tenancy, does the prescribed information have to be re- issued within 30 days from the commencement date that the periodic tenancy arose or would the previously served prescribed information be deemed sufficient?
  • Where this becomes extremely “cloudy” is that the case ruling deems a Statutory periodic is a new tenancy and the Housing Act 213 Requirements relating to tenancy deposits says:The prescribed information within the period of 30 days beginning with the date on which the deposit is received by the Landlord. 

The case deemed the money is passed over to the new contract, so therefore this could be considered as received from the date the tenancy became a statutory periodic.

The real “sting in the tail” and why landlords should be concerned.

If it is upheld, new deposit protection MUST have been acquired and/or prescribed information issued within 30 days of commencement of a statutory periodic. If this was not done then the Tenant may seek compensation of up to three times the deposit value and they can still claim up to 6 years after their tenancy had ended!
  • Additionally if the landlord had evicted using a Section 21 and the deposit had not been protected according to this case law, then the eviction could be argued to be unlawful
If the Case is upheld it has extremely dangerous repercussions for all private renting landlords as it could now be used as a yard stick for seeking compensation....and of course we live in litigious times with firms only too happy to pander to the compensation culture.
 
Historically case law, Harvey v Bamforth, would hold saying there is no material disadvantage to the Tenant. However in its “extreme wisdom”, the Localism Act nullifies the use of such a defence as it is now obsolete because: Section 215 of 2004 Housing Act refined by the Localism Act “Sanctions for non-compliance” states:
 
Prevention of service of Notice under Section 21 of the Housing Act 1988.
No Section 21 notice may be given in relation to the tenancy until such time as section 213(6)(a) is complied with .This basically means the prescribed information leaflets etc provided to tenant/person who paid the deposit.
  • 213(5)(b) states - within the period of 30 days beginning with the date on which the deposit is received by the Landlord. [So the deposit is deemed as new deposit having been carried over to new the periodic tenancy [contract]– so 30 days from the date it became a statutory periodic]
    So if a periodic is a new contract, as the case implies, is the previously prescribed information is invalid and had it not been re-issued within 30 days then we have two parts of the penalty that may be incurred.
  • The court must order the Landlord to pay to the applicant a sum of money not less than the amount of the deposit and not more than three times the amount of the deposit within the period of 14 days beginning with the date of the making of the order.  
  • Also the Localism Act amended Section 214 of the 204 Housing ACT: “Proceedings relating to tenancy deposits” which means “also applies in a case where the tenancy has ended”.  The Statute of Limitation means that even after up to six years of ending their tenancy, tenants could still make a claim.
If upheld this will almost certainly open up a “can of worms” and cause a horrendous back log of court cases such as:

1) Tenant claims for compensation for deposit breach
2) Claims unlawful eviction
3) Setting aside current possession claims
4) Counter claims and setting aside money judgements
5) Class action and consequential loss claims
Without stating the obvious, this ruling will put every landlord at risk from rent career criminals and put the whole sector wide open to abuse.

Other relevant sections PIMS.co.uk

  • Deposit Case Laws
  • Localism Act deposit Revisions 2011 implemented April 2012
  • Penalties non compliance deposit protection
  • Court Application Section 21

Solutions to minimise your risk to claims of unlawful eviction and compensation CLAIMS

1) If you took a tenancy deposit pre 2007 irrespective that it became a statutory tenancy periodic before this date simply issue a new tenancy agreement and put the deposit in a scheme in a scheme.
The fact is if the Tenant has been with you for 5 years then there must be trust so issuing a new tenancy and protecting the deposit ensures you are using a Tenancy agreement that complies with latest law.

SHOULD YOU HAVE ISSUED A FIXED TERM TENANCY WHICH HAS BECOME A STATUTORY PERIODIC THEN CONSIDER

1) A defence that may be used is the previously prescribed information remains valid even though served previously - but put simply who wants to risk going to court and establishing a precedent.

2) Therefore the only practical ultra safe solution. Is use the fact the deposit schemes updated their scheme leaflets and re issue the prescribed information as dated originally - simply stating resupplied?
On Date X and enclosed latest leaflets

3) Where the issue becomes extremely concerning is the prescribed information form states in the first sentence of page 2 the landlord received a deposit on X date
  • On _______________ a Deposit of £XXX    (Here one could entered received originally on date X becoming a periodic tenancy on date Y)

3) A new Section 21 would have to be re-served  
 
IF YOU ARE IN THE MIDDLE OF A SECTION 21 EVICTION
  • Please call the members helpline for the goal posts on this case law will move on a dialy basis and sadly until there is a revision or a directive to Judges - amendment to civil procedure part 55 nobody can provide definitive guidance on the implications of this case for we simply do no know how plausible or permitted a tenant defence using the case ruling maybe. 

SHOULD IT BE DEEMED previous deposit protection is invalid in entirety

  • Then every tenant who has ever become a statutory tenancy after 2007 could seek compensation, the courts would be in turmoil and we may see the demise of the legislation and schemes-  

THE WISEST OUTCOME IS A REVISION TO THE LOCALISM ACT

  • Where any tenancy becomes a periodic after April 2007 provided such deposit is held in accordance with a deposit scheme the deposit remains protected the prescribed information remains valid. 
  • This is what schedule 10 of 2004 housing Act implies and it is this that should prevail as the essence and meaning of Deposit Protection compliance.