Lawyer Advises Landlords To Check ASTs And Protect Deposits

By David Shirt

A recent Court of Appeal case involving Superstrike Limited and Marino Rodrigues has again highlighted the complexities of the supposedly simple tenancy deposit legislation which was introduced by the Housing Act 2004 and amended by the Localism Act 2011.

In this particular case, Mr Rodrigues entered into a typical assured shorthold tenancy (AST) and paid a deposit in January 2007 - before the tenancy deposit legislation came into effect. The fixed term of the AST expired in January 2008 and, by the effect of the Housing Act 1988, Mr Rodrigues became a statutory periodic tenant on equivalent terms. He continued on that basis until 2011.

In 2011 Superstrike sought possession of the premises and served a notice to quit under section 21 of the 1988 Act. A possession order was originally granted but then set aside as a result of Superstrike’s failure to protect the deposit in accordance with the tenancy deposit legislation.

Superstrike appealed this decision on the basis that the deposit was received before the legislation came into effect and as it did not have retrospective effect they didn’t have to comply. Unfortunately for Superstrike and many other landlords that will undoubtedly be in the same position, the Court of Appeal did not agree.

Christopher Perrin, a property litigation specialist at the Manchester office of law firm Irwin Mitchell, said: “The Court of Appeal’s rationale was that the effect of the 1988 Act was to create a new and distinct tenancy on equivalent terms as the expired tenancy. Accordingly, the tenant’s liability to pay a deposit was satisfied by the landlord retaining the original deposit and as the deposit was held as security for the performance of the new tenancy, which commenced after the commencement of tenancy deposit legislation, it should therefore have been protected at that time.

“The practical effect of this decision was that Superstrike was not entitled to possession when it was sought and it is highly likely that the costs incurred in this matter would have far outweighed the entire rental income from the AST.

“It is therefore important that all residential landlords check their ASTs and, where necessary, take urgent steps to protect any deposits that are not protected. Reminders should also be set to re-register the deposits and serve the prescribed information within 30 days of the expiry of the fixed term and the creation of the new statutory periodic tenancy. Unless this is done landlords will not be able to seek possession, should they so wish, and may be liable for the other sanctions that can be imposed by the tenancy deposit legislation.”