5 June 2014 by Yezdan Izzet

Landlords: Avoid being hit by Superstrike

Since 6 April 2007, it is mandatory for landlords of residential properties to place any deposit received from a tenant under an Assured Shorthold Tenancy into an authorised tenancy deposit protection scheme.  These government backed schemes are designed to safeguard tenants’ deposits and facilitate the resolution of any disputes over deposits at the end of a tenancy.

The schemes were not retrospective and as such, any deposits received by landlords prior to 6 April 2007 did not need to be placed into a scheme.  However, the recent decision of the Court of Appeal in Superstrike v Marino Rodrigues has caused some uncertainty about the obligations of landlords to protect deposits again when the original fixed term of a tenancy expires.

In Superstrike, an assured shorthold tenancy was granted and a deposit was paid by the tenant in January 2007.  Because the deposit was paid prior to the introduction of the tenancy deposit protection schemes, the deposit did not need to be registered with a scheme provider at that time.  The fixed term of the tenancy came to an end in January 2008 and the tenant held over in occupation under a statutory periodic tenancy for several years.  There were no discussions about the deposit in 2008 and the landlord simply held onto the deposit.  In 2011 the landlord served a Section 21 notice upon the tenant pursuant to the Housing Act 1988 giving the tenant the requisite 2 months’ written notice to end their tenancy, and subsequently commenced possession proceedings.  The tenant Mr Rodrigues defended the proceedings by challenging the validity of the Section 21 Notice on the grounds that the landlord had failed to protect the deposit in an authorised scheme.

The Court of Appeal held that when the tenancy became a statutory periodic tenancy in 2008, a new tenancy arose and a new deposit was deemed to have been received, and therefore the requirements of the tenancy deposit protection legislation were triggered.  The Court ruled that as the landlord had failed to pay the deposit into an authorized scheme in 2008, the landlord was not entitled to serve the Section 21 Notice and thus not entitled to possession.

Superstrike has caused confusion for landlords over what to do with deposits especially where they have received a deposit after the tenancy deposit protection scheme legislation came in on 6 April 2007, and the tenancy later becomes a statutory periodic tenancy or the fixed term of the tenancy is renewed. The law is currently not certain as to whether a landlord in these circumstances has to re-register the deposit with one of the authorised schemes again.

Given that the consequence of not correctly protecting a deposit may prevent a landlord from serving a valid Section 21 Notice and a possible fine of up to three times the deposit amount, prudent landlords would be wise to re-register deposits whenever a fixed term expires and a statutory periodic tenancy arises or on renewal of a fixed term tenancy.

For further information on how Superstrike may affect you as a landlord, please contact us on 0207 288 4700.

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