Important Decision for Landlords on Deposits
Updated August 2016
The Court of Appeal decision in 2013 (the Superstrike case) has an impact on the tenancy deposit legislation and arguably changes the way statutory periodic tenancies are interpreted.
This Briefing Note should not be relied upon as legal advice and you should contact us for advice on your specific circumstances.
Previously it was uncertain whether a statutory periodic tenancy (SPT) was considered a ‘new’ tenancy unless any of the terms had changed, such as for example the rent. If there were no changes then it was generally considered a continuation of a tenancy rather than a ‘new’ one, although there was some debate on this issue.
Now, following this Court of Appeal decision, there is certainty in the notion that once a fixed-term AST ends and becomes an SPT it will be a ‘new’ tenancy and a deposit is essentially deemed to be ‘re-taken’ on commencement of the SPT. The implication of this is that if a tenancy was entered into before April 2007 and a deposit was obtained but not protected because it was before the deposit protection legislation came into force, it should have been protected within 14 days of the SPT commencing (provided the SPT commenced on or after 6 April 2007). If it was not protected then the tenant will have a claim against the landlord for between one and three times the deposit. Further the landlord will now need to return the deposit to the tenant in full or with agreed deductions before being able to serve a valid section 21 notice. It is not sufficient to protect the deposit late.
Following the decision there were thought to be wider implications with many believing that the decision meant every time a fixed-term tenancy becomes an SPT (even where a deposit has already been protected) the deposit needs to be re-protected within 30 days of the new SPT and the prescribed information needs to be re-served. The uncertainties have now been clarified by the Deregulation Act 2015. See our briefing note “Major Changes to Residential Landlord and Tenant Law” in this respect.
Note that if the time limit for protection has passed then the deposit should be repaid instead of protected and prescribed information provided, further to the provisions of the Localism Act 2011.
Possible solutions to prevent problems with deposits
One potential way landlords can get round the minefield that is the tenancy deposit legislation would be to not take deposits but instead increase the monthly rental to take into account possible dilapidations/rent arrears.