Done Up Like Kippers

by Mark Alexander

9:33 AM, 22nd December 2014
About 4 years ago

Done Up Like Kippers

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Done Up Like Kippers

EDITORS NOTE: The following article was submitted by George Crofts Llb (Hons), with whom I had a very educational and eye opening discussion last week regarding claims management and no-win-no-fee legal services for tenants. I personally invited George to submit an article so that our landlord, tenant and letting agent readers could ask George the types of question that I have done. George has very kindly dispelled several myths so please be kind to him and use this opportunity to learn more about the industry we are all so fearful of.  Over to George …. Done Up Like Kippers

“Done up like kippers” was how one landlord described the state of deposit protection law following the Superstrike ruling.

For any that have missed this development, this case meant that a claim could be made against the landlord if they had not provided the Prescribed Information when a Statutory Period Tenancy (SPT) arose.

Many landlords grant Assured Shorthold Tenancies (AST) and allow them to develop into SPT without the need for documentation. The tenancy continues as before, under the same conditions but the contract renews month to month.

This court of appeal ruling held that an SPT is a new tenancy, distinct from the original AST. As a matter of law, a new deposit must have been paid. The old contract ended (AST), and a new deposit was payable in regard to the SPT (which takes over under the same conditions). The fact no money changes hands means nothing. When the old contract ends, the old deposit becomes payable to the tenant. The new deposit (for the SPT) is paid by way of setoff against the landlord’s obligation to return the original deposit.

As a point of law, it makes sense. Clearly an AST is a different beast to a SPT. The practical application means that the new deposit should be dealt with as such, a new deposit. The landlord must protect the deposit and serve the Prescribed Information.

If the landlord has already protected the deposit, (s)he doesn’t need to re- protect the deposit (it’s already in a scheme!). But, for every deposit taken, the landlord needs to issue the Prescribed Information.

The case also paved the way for the argument that multiple claims could be made where there is a succession of ASTs granted to the same tenant. The argument runs: If a SPT is a new tenancy then clearly a new AST is a new tenancy. Following the Superstrike logic, it must be that a new deposit is paid. Again, if the landlord has failed to provide the Prescribed Information at the start of each new AST a breach occurs.

Again, as a matter of law it makes sense. An AST is a lease granted over residential premises at a rent for a defined period. When you grant further ASTs these are clearly separate and distinct from the original lease in that they are for different periods of time. It is a matter of common law that a lease cannot be extended and any attempt to do so takes effect as surrender and re-grant. Whatever way you view the situation, when the original AST ends and the tenant stays in occupation, it’s under a new agreement.

The prospect of having to pay out simply because the Prescribed Information wasn’t given again when a new AST is granted or when a SPT arose caused widespread criticism. Nobody had told landlords to reissue the Prescribed Information (although the schemes produced some meek guidance on the matter after Superstrike). Most of the frustration in relation to this matter comes from landlords that have played by the rules, protected deposits and followed all available advice and have still ended up in breach because of Superstrike.

At the time, the Housing Minister Mark Prisk responded to lobbying from the RLA with a letter explaining he was ‘urgently exploring whether new legislation is required to clarify the situation’. Fast forward one year and here we have it, the answer is contained within the Deregulation Bill 2014.

Essentially, this adds more amendments to the original Housing Act 2004 (yes, that’s in addition to the amendments bought in by the Localism Act 2011).

The new S 215 A Housing Act 2004 protects landlords from pure Superstrike claims. Any landlord that has received a deposit before the original legislation (Housing Act 2004) came into force (April 6th 2007) has a chance to protect the deposit and serve the Prescribed Information within 90 days. When they received the deposit, the requirement to protect did not exist. If the tenancy is on-going and they are still holding the deposit, they now need to protect the deposit. If they do so, no claim can be made.
The new S 215 B and S 215 C protect landlords that have either granted further ASTs or allowed ASTs to become SPT where the deposit was paid after April 6th 2007. So long as the original deposit was dealt with in accordance with an authorised protection scheme and the Prescribed Information was served within the time limits, no claim can be made if the Prescribed Information was not served when the replacement AST was grant or the SPT arose.

The ramifications of this new legislation are very wide. All landlords that have dealt with their deposit correctly (from April 6th 2007) can breathe a sigh of relief. If you have protected the deposit on time, and served the Prescribed Information correctly, you cannot be caught out. You are deemed to have re-issued the Prescribed Information when the replacement AST or SPT was granted and cannot be pursued for any breach of deposit protection law.

So, is this the magic bullet solution that will fix all the issues? The simple answer is no.

Where a landlord has failed to deal with a deposit properly when the tenancy was granted a claim can still be made for the original tenancy and further ASTs or SPT where the deposit remains unprotected. For tenancies granted after April 6th 2007 and before April 6th 2012 this means that if you failed to protect the deposit within 14 days or failed to provide the prescribed information within 14 days you are still at risk.

For tenancies granted after April 6th 2012, the time limit of 30 days applies but the same is true: if you have failed to protect the deposit correctly for the initial tenancy you will face the penalties for that tenancy and further AST’s/SPT.

It is suggested that those most at risk are landlords that have received deposits after April 6th 2007 and before April 6th 2012. At that time, case law suggested that so long as the deposit was protected before court action was commenced, no claim could be made. As such, some landlords failed to protect deposit knowing full well that if they were ever called to account, they could protect before the claim was issued and avoid the penalty.

These landlords could now be facing claims for the original tenancy and subsequent ASTs/SPT.

The most important thing to remember is that the Deregulation Bill 2014 will only give protection to those that have dealt with the deposit correctly from the start. If you failed to deal with the deposit correctly, a claim can be made for the original tenancy and for each new tenancy that follows.



Comments

Mark Alexander

15:12 PM, 22nd December 2014
About 4 years ago

Hi Geoff

I'm going to get this conversation started by asking you to tell me how a no-win-no-fee claims management company would look upon a claim from a tenant who was in rent arrears.

I appreciate that we have already had this discussion over the telephone but I think that information would be of great interest to our readership.
.

Reader

17:17 PM, 22nd December 2014
About 4 years ago

Dear Mark, I know this is pantomine season but as I read the article about the latest alteration to the legislation it seems to make the requirement retrospective. Some of us have had tenants on ASTs that have become periodic before 6th April 2007. As such the deposit did not require protection. Does it really require us to now protect those very old deposits ?

George Crofts LLB

17:50 PM, 22nd December 2014
About 4 years ago

@Mark

Many thanks for the introduction and for publishing this article.

@ Reader

You raise a very interesting point. The retrospective aspect of both the Localism Act and this proposed Bill have been widely discussed, critiqued and criticised.

Your specific example (deposit for SPT beginning before 2007) has recently been dealt with by the Court of Appeal. Judgement given on the 16th December 2014.

Here is a link: http://www.bailii.org/ew/cases/EWCA/Civ/2014/1604.html

As you will see, the judiciary appear to be mirroring what I say above about the new S 215 A. In this case, the S21 notice could not be served because the deposit was not protected. The court discusses the retrospective issues at length:

"It might well be said that section 215 (1) (b) is potentially retrospective, because it does on the face of it attribute a different legal consequence to a past act (or, more properly, to a past omission). One argument is that the problem of potential retrospectivity is dealt with by the Order. Article 16 (2) confronts head on the problem about timely compliance with section 213 (3). It does so by giving the landlord a prospective window in which to comply. "

Article 16 (2) allowed any landlord that was holding an unprotected deposit to register it within 30 days of the Localism Act 2011 coming into force. The unprotected deposit from a SPT beginning before 2007 should have been protected then. If it had been, no sanction would have applied.

In this case, the judge clearly sums up that the deposit was never protected and that alone was enough to decide that no S21 notice could be served.

The new S 215 A brings in a similar grace period. For 90 days after the act is brought in, a landlord can protect their pre 2007 SPT deposits with no sanction applying.

Given this recent judgement and the fact that this will be the second grace period given to landlords in this situation, it is very clear that if you are holding a deposit, it needs to be protected.

Romain Garcin

19:28 PM, 22nd December 2014
About 4 years ago

"This court of appeal ruling held that an SPT is a new tenancy, distinct from the original AST. As a matter of law, a new deposit must have been paid. The old contract ended (AST), and a new deposit was payable in regard to the SPT (which takes over under the same conditions). The fact no money changes hands means nothing. When the old contract ends, the old deposit becomes payable to the tenant. The new deposit (for the SPT) is paid by way of setoff against the landlord’s obligation to return the original deposit."

I'd like to comment here:

The Superstrike ruling did not hold that the SPT (which is also an AST) is a new tenancy.
That was already clear and known, both from the statute and from previous case law, and the court only repeated that position to counter the landlord's argument that the SPT was just a 'continuation' of the original fixed term AST.

What the ruling clarified are the deposit regulations, which state that a deposit must be protected and PI given when it is "received in relation to an AST".
The widespread interpretation was that "received" meant actually paid from the tenant to the landlord.
Superstrike clarified that, in effect, if there is a tenancy and if there is a deposit then the landlord must have received the deposit in relation to that tenancy, even if only notionally.

"If the landlord has already protected the deposit, (s)he doesn’t need to re- protect the deposit "

This is not that straightforward and depends on the scheme's rules. If the scheme requires the landlord to do something, even if only to notify them, then he must do so or be in breach of the regulations.

One last thing regarding tenancies that ended _before_ 6th April 2012: In these cases the landlord is safe because no action could be taken after the end of the tenancy.

George Crofts LLB

22:10 PM, 22nd December 2014
About 4 years ago

@Romain

Thanks so much for commenting and expanding upon some of my points.

You are correct, of course, in everything you say. The real meat in Superstike is at paragraphs 27 and 28:

" [T]he 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."

In regard to re-protection of a deposit, as you say this can be complicated and depends upon the scheme rules. What we are talking about here is whether the 'Initial Requirements' of a scheme have been met.

Remember that critically, it is the Scheme Rules at the time the deposit was received that are relevant. These are updated periodically and you need ensure that you have the correct set of Rules. This is going to be of particular importance to somebody seeking to rely on the new S215B because the focus is very much upon what happened to the original deposit and at the point the tenancy was replaced.

Compliance hinges on the deposit having been protected initially and " the deposit continues to be held in connection with the new tenancy, in accordance with the same authorised scheme as when the requirements of section 213(5) and (6)(a) were last complied with by the landlord in relation to the deposit." (S215B (1)(f)).

Essentially, the the scheme will only arbitrate if their requirements have been met. If they haven't, the scheme won't arbitrate and the tenant has a claim because the landlord has failed to comply with the rules. It would appear that everything is how it should be, the main point being that a tenant should have access to a fair and impartial decision.

Having said this, it does raise some important questions: Should the schemes be given this much power? They do, after all, set their own 'Initial Requirements'. You can imagine the situation where the scheme doesn't want to arbitrate because it costs them money (remember that TDS is a not for profit scheme, is this true of the others?). I have never heard of this happening but the potential consequences for the landlord are dire.

Gary Nock

9:37 AM, 26th December 2014
About 4 years ago

Do we know when the Deregulation Act comes into force? I have a number of ASTs becoming SPTs at the end of this month and have chopped down several rain forests in preparation by printing off the documentation. From reading this post it seems that landlords are retrospectively protected once it's in provided they dealt with the original deposit properly. Which is good. I have a deposit that was taken by an agent in April 2003 which will now need protecting so I shall be asking them for it to do that myself as no doubt they will charge me for it as they no longer manage it.

Neil Robb

12:04 PM, 26th December 2014
About 4 years ago

Hello George

I have a few points.

Is it fair that the scheme changes once it has started ? Yet no one go back to advise users of the new rules.

When the deposit scheme came into Scotland. I was informed that no deposit held before the start date had to be protected. I have since found out recently that they now have to be retrospectively protected. Leaving me vulnerable If I try to correct this, I will make the tenants aware. They will then try and claim. How is this fair to anyone. The tenant can hold this over me for 6 years.

I rarely take a deposit. I have only deducted anything from the deposit on a few occasions. I normally do most repairs at my own expense.

I had one tenant who left my property actually try and claim from me when no deposit was taken because he was given the wrong advice. To make matters worse he actually owed me a few hundred in arrears.

When I have held onto the deposit the tenant left leaving £2500.00 in arrears for rent. The deposit would not go anywhere near to covering this. What does the law do to help me recover this next to nothing except possibly leave me a large legal bill to chase the tenant who then claims he can't pay.

Why not bring out laws that if a tenant takes on a property and decides not to pay their rent this is a criminal offence. In business if you offer a service and take money from a customer and do not carry out the work this is deemed fraud. What is the difference.

The other time was when the tenant decided to cut all the wires in the burglar alarm system.

Why would a landlord allow any tenant to stay in their property who has taken action against them.

Why is this all set against the landlord. The police rarely act when a tenant steals furniture from their property? I would say this is theft. The police tell landlords it is a civil matter. No it is not to permanently deny the lawful owner is theft.

When they deliberately damage the property the police again will say it is a civil matter. Do the same in Tesco's it is criminal damage.

I could go on and on but without landlords who is going to provide properties for people to live in. The government either will not or can not afford to provide these house's. Why not have laws that make the tenant accountable.

I have invested A large amount of money into property and try to make sure they are of good standard. I treat my tenants the way I would like treated myself.

Is it fair to criminalise a landlord and give him a criminal record over what could be a clerical error or a lack of knowledge. Look at the fines Three months rent say £500 a month plus the original deposit So £2000.00 Plus what ever else get flung into the charges as well.

Looking through the local paper people who committing criminal acts drink driving, carrying a knife slashing people. Theft GBH the list is endless none of seem to get fines any where near this.

So why is it fair that Landlord be prosecuted and face such fines when Tenants and criminals do not.

Reader

19:57 PM, 26th December 2014
About 4 years ago

Has the time now arrived to not take deposits but allow tenants to occupy only if they pass referencing which requires an insurance against damaged funded of course by the tenant, for it is they who obtain the benefit of a good insurance history?

Alternatively, increase monthly rents carry the risks ourselves that the additional income will cover damage etc. Don't forget the Chancellor will take any share of such monies. Any thoughts?

Jessie Jones

9:54 AM, 27th December 2014
About 4 years ago

Reply to the comment left by "Neil Robb" at "26/12/2014 - 12:04":

Neil,
It is true that the law seems heavily biased against Landlords, as it places obligations on us which are enforced by way of heavy penalties, whereas tenants appear to have few incentives to respect their landlord or look after a property.

But it is relatively simple to comply with the deposit rules, and other than an irritating bit of admin it really isn't difficult.

We landlords could do a lot to help each other when it comes to bad tenants though. If a tenant leaves with rent arrears or causes damage, the a landlord should pursue this bad debt, through the small claims court f necessary. By doing this we can either recover the money or obtain a CCJ which will follow the tenant around for 7 years and thus warn the next landlord.

So often I read on here about landlords who have 'written off' bad debt. Well, is it any wonder that landlords are unknowingly taking on bad tenants, when this could so easily have been prevented if the previous landlord had obtained a CCJ?

Alison Winter

15:51 PM, 27th December 2014
About 4 years ago

The problem with chasing arrears is the court costs, eviction costs, etc that have been mentioned before. Now we have the issue of deposits "honestly" dealt with but, guess what, the law takes you for more.
Question, does the tenant have a maximum time for making a claim against the deposit issue?

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