Court of Appeal case will affect few tenancies, insists NLA

NLA advice to members:

On 14th June 2013 Lord Justice Lloyd delivered his judgement on an appeal from the Wandsworth County Court in the case of Superstrike Ltd v 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 v 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.

NLA and UKALA press release:

NLA AND UKALA CALL FOR CLARITY OVER TENANCY DEPOSIT PROTECTION LAW

The National Landlords Association (NLA) and the UK Association of Letting Agents (UKALA) are jointly calling for clarity amid speculation about the impact of the recent Court of Appeal judgement in the case between Superstrike Ltd and Marino Rodrigues.

The judgement of 14 June 2013 is the latest in a long line of appeal cases to cast doubt on landlords’ responsibility to protect tenants’ deposits.

In the case of Superstrike Ltd and Marino Rodrigues, the Lord Justice Lloyd’s conclusion has raised significant questions about the status of long-term periodic tenancies which began prior to the introduction of tenancy deposit protection (TDP).

Richard Lambert, CEO of the NLA, says: “It is understandable that landlords are concerned about this case, and the potential impact it could have on those who find that they have unintentionally failed to comply with tenancy deposit protection legislation as a result of Lord Justice Lloyd’s ruling.

“However, they must remember that this judgement only applies to a very specific set of circumstances, meaning that most landlords will be unaffected.

“Although it is likely to affect relatively few tenancies, the NLA’s real concern in this matter is that, once again, professional landlords, following government guidance on how to comply with the law, have been caught out by the unintended consequences of the Housing Act 2004.  

“The Government must act swiftly to reassure the industry that law-abiding landlords will not face sanctions as a result of this new interpretation of the rules.

“We’ve written to the Housing Minister calling on him to take urgent action to re-assert the spirit of the law on tenancy deposit protection and restore fairness to the system which was designed to ensure it.”

Caroline Kenny, UKALA Chief Executive, says: “UKALA is troubled that once again tenancy deposit protection rules appear to have been thrown into disarray by the Court of Appeal.

“Landlords and their agents simply trying to understand and comply with the law will be rightly disillusioned by yet another reconsideration of ‘the right way to protect a deposit’.

“We hope to see this matter taken to the Supreme Court so that clarity can be achieved once and for all.

“In the meantime, the industry is in desperate need of guidance from the Government about how to treat affected deposits.”