Landlord power can and will get Deposit Protection rules clarified

Landlord power can and will get Deposit Protection rules clarified

7:38 AM, 19th June 2013, About 9 years ago 66

Text Size

Landlord power can and will get Deposit Protection rules clarifiedThe potential implications of the ruling that a Statutory Periodic Tenancy is a new tenancy, according to the Court of Appeal ruling in Superstrike Ltd vs Rodruigues, has reverberated around the industry at lightening speed. Every popular landlord forum, blog and Facebook group has carried articles and thousands have been motivated to express concern. Indeed, my own article had over 3,000 readers and 100 comments left within just one day.

My initial reaction was one of pure panic and terror for what the implications might be. However, with time I have come to realise that once the powers that be recognise the implications of not adding further clarity to the legislation, I suspect we will receive the clarity we need.

So what is the ideal outcome we should all be hoping for?

In my opinion it needs to be confirmed that once a deposit is protected, either in a custodial or by an insured scheme, than it remains protected until such time as it is unprotected. The roll-over to a new statutory periodic tenancy is deemed to be a create a new tenancy and is seamless in terms of paperwork. Therefore, the rollover of the deposit protection and the prescribed information needs to be equally seamless and to remain valid providing it was dealt with properly within 30 days of the original fixed term tenancy being created.

Anything else would be ludicrous in my opinion. For example, if the clarification is that it is necessary to re-serve prescribed information again when a new Statutory Periodic Tenancy is created then most landlords would have to re-serve notice monthly. This is because a statutory periodic term is the payment cycle of rent which is typically every month. Thus, a new statutory periodic tenancy is created with every payment.

There may be variations on my suggested theme but as I write this article I can not think of a more logical one.

One thing is for sure and that is WE NEED CLARITY.

The Deposit Protection Providers will, no doubt, be meeting with the law makers to explain the urgent need for this clarification. Remember, their business models are in jeopardy too if landlords and letting agents all decide to stop taking deposits and find alternatives. I suspect the Council of Mortgage lenders are worried too!

Landlords and letting agents must add pressure for clarity

We can’t just leave it to the Deposit Protection Schemes, we need to make our voices heard.

I thought about starting a petition but then I decided it would be better for the industry and the press to be able to read comments from landlords and letting agents about how strongly they feel about this.

This is YOUR opportunity to have YOUR say.

Please leave a comment below and encourage all other landlords and letting agents you know to do the same

 



Comments

by

11:34 AM, 20th June 2013, About 9 years ago

The confusion evidenced above and the fact that the Court of Appeal specifically declined to make a decision on the more normal circumstances where the first tenancy and SP tenancy both arose during the reign of Deposit Protection makes it admirably plain that clarification is needed. Note, 'clarification' rather than 'action'.

The relevant minister needs to decide what he wants this legislation to achieve, then to consider whether it does that, and if not, change it. What we, the DPS lobby and our MPs need to do is neither have a go at the judges nor propose instant changes to the legislation (which may have further unintended consequences) but to engage the government in acknowledging the mess and then sorting it out.

I shall be writing to my MP today to ask him to try to do just that.

by Robert M

12:34 PM, 20th June 2013, About 9 years ago

It is a strange anomaly that, strictly speaking, apparently you cannot give notice under a statutory periodic tenancy. Instead, you give notice that you do not want to renew it at the end of a specified period. It is for this reason that you cannot enforce notice for a date part way through a period and why, years ago when the Housing Act 1988 was young, there were cases where the notice given was not correct. If notice is not given you are renewing the contract for another period.

I have never known anything actually matter about this point or, before this ruling, anything that might matter. In fact, the point is so old I cannot remember where it first cropped up. However, until a few days ago I was happy to assume that a statutory periodic tenancy was a continuation of the original fixed period agreement. This just proves I know nothing.

However, I suggest we park this issue at the moment. It is only an esoteric extra point that arises from a more significant mess that has been created by the new doubt.

Michael Barnes makes the point that if you have complied with the scheme rules you might assume you are fine. However, it the scheme rules do not comply with the law, as it now seems they MAY not, that argument would not work. Instead, it gives you an avenue to complain to, which is why the scheme providers are currently acting like headless chickens, albeit behind the scenes.

I do not think using the custodial scheme necessarily provides any extra help. Paragraph 36 of the stated case says:

"Once the new statutory periodic tenancy had come into being after the commencement date, a tenant's deposit being already held, it would be necessary to consider whether and if so how the 2004 Act applied. As I have said already, it must have been the landlord's position, by then, that it held the sum of £606.66 as a deposit as security for the performance of the tenant's obligations, or for the discharge of any liability of the tenant, arising under or in connection with the new tenancy. That could only be the correct legal position if that sum of money was to be treated as having been paid pursuant to the tenant's obligation under the periodic tenancy to provide a deposit. That obligation only arose on the expiry of the fixed term tenancy, so the payment at the beginning of that fixed term cannot have given rise to the position which obtained once the fixed term had expired. Something must have happened in January 2008 which led to the result that the deposit was held in relation to the new tenancy. That something could have been either an actual (or, as Mr Bhose put it, physical) payment (but none took place in this instance) or something which amounted to payment. If there was an actual payment or something treated as a payment there must also have been a corresponding receipt."

It is not the rules of a particular scheme that specify the deposit belongs to the tenant. The legal ownership of the money does not alter if the money is held by the landlord, an agent or the protection scheme provider. Furthermore, the ruling states that money does not have to move for a deemed payment and receipt to have taken place.

by Robert M

13:11 PM, 20th June 2013, About 9 years ago

Off topic but I cannot let an error pass in case others believe it to be true.

Puzzler suggests that under a periodic tenancy a tenant does not have to give notice for the end of a period only. Now the agreement may say otherwise, in which case the term in the agreement may apply if it is not in conflict with the law. Similarly, the landlord and tenant may mutually agree an end date.

Otherwise, the tenant must give notice equal to at least a period of the tenancy and expiring at the end of the period of the tenancy.

You might want to read Hill & Redman's Law of Landlord & Tenant, Vol 1 A 8127 and/or page 206 of volume 3 of Megarry & Fancourt on the Rent Acts.

by Michael Barnes

13:31 PM, 20th June 2013, About 9 years ago

@mark Alexander: 5(3)(a) defines when a SP comes into effect.

@Robert M: Oh well, then I MAY be back in the doo-doo.

by Mary Latham

13:41 PM, 20th June 2013, About 9 years ago

FROM NATIONAL LANDLORDS ASSOCIATION 20.6.13

Superstrike Ltd vs. Marino Rodrigues – A call for calm and greater clarity

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.

by

18:24 PM, 20th June 2013, About 9 years ago

Total confusion, this is why i don't request a deposit from my tenants. Much less hastle than chasing around with all the legal jargon associated with deposit schemes. Even th courts don't even seem to know what they are doing.

by Annette Stone

18:57 PM, 20th June 2013, About 9 years ago

Mary. Can I add my thanks for the clarity you have brought to this issue. I thought all hell had broken loose when Mark posted this. I sent it to my letting agent and he told me that you could not get through to a property lawyer that morning as they were all panicking. I think that lots of landlords and letting agents are being panicked into not taking deposits (which is a bit worrying) and I am sending your post around to everyone I can think of. My thanks.

by Mark Alexander

19:43 PM, 20th June 2013, About 9 years ago

I concur with Annette, thank you Mary and the National Landlords Association for being the first of the recognised landlord bodies to issue such a statement.

by Bernard Adey

9:23 AM, 21st June 2013, About 9 years ago

The Statutory Periodic Tenancy issue was the hot topic at last Tuesday's NLA meeting in Guildford. Although the consensus was that further clarification was urgently needed, a local solicitor was of the opinoin we should all get a notice sent to our holding over tenants pointing out that a new tenancy had been created by default and stating that the depoisit remained protected by the same organisation that it was originaly covered by, request an acknowledgement to the notice. My opinion is that most of my tenants will not understand what the hell it is all about but I think the danger is that one might be a barrack room lawyer who sees the oportunity to get a huge payout and if successful all the others might follow suit. There for I am doing nothing except waiting for more clarification to emerge. I suspect that if common sense doe's not prevail us landlords will at a stroke solve the housing shortage by all serving section 21 notices and putting our property on the market.

by Anon

9:39 AM, 21st June 2013, About 9 years ago

The NLA are to be congratulated for being the first of the officially recognised bodies representing landlords to issue such a statement.

There will of course by cynics who say they needed to do this to protect their 'cash cow' My Deposits. If landlords and letting agents consider alternative insurance based models and give up on taking deposits altogether that could be devastating for the My deposits business model.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

BECOME A MEMBER