The latest Court of Appeal ruling could mean that new tenancies have to be created monthly, and tenants’ deposits re-protected every time.
It could also mean that deposits which the law now – but not then – says were not protected properly would have to be returned to the tenant before a Section 21 notice for possession could be served.
Lawyers are citing these as among the potential outcomes of the Superstrike v Rodrigues case.
Justin Selig, of Landlord Action, is among those calling for the case to go to the Supreme Court and is meanwhile advising landlords and agents to take advice from their respective tenancy deposit schemes.
However, there is a difficulty here: the three main tenancy deposit schemes have so far been unable to provide any advice following the ruling last week.
The Superstrike judgment specifically referred to a tenancy deposit taken by a landlord prior to April 6, 2007, when mandatory protection came in.
However, because it says that when a fixed period tenancy rolls over into a period tenancy it becomes a new tenancy, there are major implications for many thousands of tenancies.
In the Superstrike v Rodrigues case, it was ruled that the landlord should have protected the deposit, and because this was not done, had no right to use a Section 21 notice to seek possession of the property.
Earlier this week, DPS, MyDeposits and TDS issued a joint statement: “Whilst landlords and lettings agents take their own legal advice, we will be considering the implications of this judgment for deposit protection and the service of prescribed information.
“We will also need to consult the DCLG on this and we will be issuing a further joint statement when we have fully considered the matter.”
Yesterday, all three of the services – which may have to rewrite their own procedures –said there was no update.
However, lawyers are beginning to issue their own commentary on a case which could see thousands of landlords faced with the prospect of legal action from tenants, going back six years.
Selig, a solicitor and director at Landlord Action, urged Superstrike, as landlord, to take the case to the Supreme Court for further clarification.
He confirmed that the case has implications for every landlord and agent whose tenant occupies a property under an Assured Shorthold Tenancy and where a deposit has been taken.
He said: “The question is, where you are holding a protected deposit, do you need to re-protect it each time there is a renewal of a tenancy? At present, I think the answer to that is, yes.
“There is a further problem. A periodic tenancy is deemed to be renewed at the expiry of each period.
“Therefore, if you follow the argument – this would mean that the deposit would need to be re-protected at the beginning of each period. Most periodic tenancies are monthly – so the deposit would need to be re-protected monthly.
“Obviously this does not make sense, nor I am sure is this the intention of the legislation.”
He advised: “The first thing I would do is to obtain written clarification from the deposit protection company you are using as to their take on the ruling, and comply with their recommendations.
“Secondly, as a minimum, and you have a fixed term tenancy about to go on to a periodic, you should at least protect your deposit again when it goes periodic. (Personally, I would actually return the deposit to the tenant – but I appreciate that this is not always practical.)
“Thirdly, and for belt and braces protection – where you are still holding the deposit, you may want to consider not allowing the tenancy to go on to periodic, but to reissue the tenant with a new fixed term – and re-protecting the deposit for that fixed term.”
Nigel Rowley, head of litigation at Mackrell Turner Garrett in Surrey and London, said it was possible that a deposit might not have to be re-protected at periodic stages, but that a fresh set of prescribed information might have to be given out each time.
He said: “Since the Court of Appeal has held that a statutory periodic tenancy is not a continuation of a fixed term tenancy but a new tenancy, the significance of this does create a knock-on effect with all ASTs including those entered into post-April 2007.
“A deposit is essentially ‘re-taken’ by the landlord upon a statutory periodic tenancy and renewal. There does not seem to be any suggestion that a deposit needs unprotecting and then re-protecting at the stage of statutory periodic and renewals, though we would not risk suggesting otherwise until there is some judgment on this.
“However, this might mean that new prescribed information must be given not only at the time of physically receiving the deposit but also whenever a tenancy becomes statutory periodic or a renewal is provided.
“Another knock-on effect may result in the TDP schemes having to be rewritten.
“According to their own individual rules, a deposit remains protected if the tenancy agreement continues on a statutory periodic tenancy after the end of the fixed term – provided, for example, that landlords reflect this on the TDS database before the last day of the fixed term.”
A colleague of Rowley’s, Tony Kent, said that landlords who had inadvertently failed to comply might have to return a tenant’s deposit if they wanted to serve a Section 21 notice.
He said: “The Court suggested this but did not make a decision on that point.”
He too thought the case should be further appealed.
Comments
More measured advice here:
http://www.landlords.org.uk/news-campaigns/news/superstrike-ltd-vs-marino-rodrigues-–-facts-explained
In the words of Coporal Jones 'don't panic'!
My apologies IO I read your s5 to mean sub section 5 of section 5 but I still see no reference to new. Perhaps we are reading something different so I'll show you mine if you show me yours, here's sub section 2 you mentioned;
(2)If an assured tenancy which is a fixed term tenancy comes to an end otherwise than by virtue of—
(a)an order of the court [F2of the kind mentioned in subsection (1)(a)
or (b) or any other order of the court]F2, or
(b)a surrender or other action on the part of the tenant,
then, subject to section 7 and Chapter II below, the tenant shall be entitled to remain in possession of the dwelling-house let under that tenancy and, subject to subsection (4) below, his right to possession shall depend upon a periodic tenancy arising by virtue of this section.
No editing and freely available to view online at,
http://www.legislation.gov.uk/ukpga/1988/50/section/5
Likewise that very paragraph also states a tenants entitlement to REMAIN in possession of the dwelling house let under THAT tenancy - the fixed period one.
The periodic is a default, its a fixed period with the same terms and conditions thats been tweaked to afford the tenant ongoing protection and not in the true meaning of 'new' otherwise what do we call a renewal fixed term, a new new tenancy? We can duke it out but thats just my point, its not as clear as you would have us believe.
@ Wonderful Life
You must be the only person who doesn't think s5 of the 88 Act deals with periodic tenancies, I have no idea what you are reading but it most certainly does.
Maybe you have a different version to my HMSO one whic cost £11.80but on page 4 there it is section (or clause if you like) 5 which has 7 sub-sections. Look at the paragraph at the end of sub section 2 last 9 words
It refers to "a new tenancy arising" and there are several references to the original fixed term tenancy coming to an end.
Seems plain enough to me - and obviously the three CoA judges who referred to it.
IO - 'it is very clear in s5 of 88 Act that a periodic tenancy is a new tenancy'
S5 doesn't actually deal with periodics, its split into 5 & 5a and both look at... well I let you actually read it yourself.
S2 - 4 does deal with this matter but it hardly makes it 'very clear' at all. Indeed, S3 (a) talks of 'taking effect' and (b) states 'deemed' to have been granted but both these words seem shy to establish a clear definition of 'new'. Now look at (c) and (d) that make particular mention of certain conditions remaining the same (again I'll let you actually read it yourself) so really all thats new is the name, Its an addendum, a revision; fixed to periodic.
Yes we can point out the small details that have changed but it'll be missing the point because no where in the Act is the word NEW used or implied and especially not in s5. Maybe thats so we don't have to re-protect the deposit every month...
@IHS
Not too sure that works. Mary Latham is right I think it needs to be Contractual from the start.
@Petetong
No guarantor has any right to give notice and release themselves unless allowed to by an inadequately drafted guarantee. There is Case Law on this from 100 years ago (someone v De la Croix) which says the guarantor can give notice UNLESS the guarantee states they cannot.
@ All TDP Schemes
Just stick to the knitting and do what you were set up and authorised to do, simply insuring or holding the money and adjudicating on disputes. Don't give advice on issues you are not qualified to advise on.
@everyone
Sorry I was right along with a few others but it is very clear in s5 of 88 Act that a periodic tenancy is a new tenancy. Therefore the TDP rules have to be followed as with any new tenancy. It may be daft, my advice is save your energy and just comply.
This case won't get any nearer the Supreme Court than Johnson did so on these facts at least this judgement is it.
@rebecca
NLA dont have a clue....
The ruling may not be about current fixed terms which go SPT but it gives a massive indication of what MAY happen in future
the only safe advice is to protect again with a fixed term become SPT
NLA makes millions from deposit protection
The NLA have blogged on the issue here: http://nlauk.wordpress.com/2013/06/20/superstrike-ltd-vs-marino-rodrigues-a-call-for-calm-and-greater-clarity/
And you will find their explanation here: http://www.landlords.org.uk/news-campaigns/news/superstrike-ltd-vs-marino-rodrigues-%E2%80%93-facts-explained
@Mary Statham
Our agreement states that the tenancy will be for a period of six months (or one year) and will continue thereafter on a ' month by month' basis unless terminated by either party giving two months notice so is open ended with no end date given.
Exactly @Tamping, fuming raging!!!
Otherwise, if indeed the tenancy has ended as the learned Judge says, then surely the tenant needs to move out, and then move back in again to have his Periodic tenancy. Every month.
Maybe we all need to find our inner magoo because this is real stupid. Look, If a periodic inherits the same terms & conditions as the fixed term then it should also inherit the deposit protection; its a 'new' in name only, of default; a 'cloud' backup of the original that wouldn't exist otherwise.
This Judge is on a slow walk to an epiphany so here's hoping he gets there quicker because I'm not re-protecting the deposit at the beginning of each monthly period.
Mary
The guarantor has the right to give notice during a periodic term anyway so this ruling doesn't really change that risk.
The main issue is deposit protection is flawed on many levels so why as a landlord would you take the risk of a deposit?
also why is the NLA so quiet? because they make millions from deposit protection via Mydeposits
looking after landlords interests lol
On the point about using a Guarantor the Guarantee would need to be carefully worded to ensure that it continued to cover the tenancy beyond a fixed term - if the tenancy is a new tenancy, as this case says, the guarantee could expire at the end of the fixed term too.
If a Statutory Periodic is a new contract/tenancy a Contractual Periodic arising at the end of a fixed term is also a new contract/tenancy and therefore needs to be treated in the same way. An option would be to begin the tenancy as a Contractual Periodic (no end date) and therefore a new tenancy would never arise unless a new AST was signed. This is an option I am considering. Tenants would still be protected by law for the fist 6 months of the tenancy and could only be removed with a Section 8. From the landlords/Agents point of view it is less satisfactory because a tenant could give one months Notice at anytime from day one. I would never try to hold a tenant to contract in any event, if they want to leave I just let them go - I don't want reluctant tenants but many landlord would not feel comfortable with this arrangement - especially if they were using an Agent who would need to charge new fees at the start of every new tenancy.
I can well understand the concerns of Letting Agents because the potential for their landlords to take legal action against them is enormous and if a landlord was fined 300% in addition to having to return 100% of the deposit I cannot imagine the landlord taking the hit if it was the Letting Agent who put them in that position.
We all need to wait and see what the DCLG come up with and I imagine that ARLA will join the landlord associations and Deposit Protection schemes in asking for a legislative fix.
The simple answer is not to take a deposit and ask for a home owning guarantor
this is partly shelters fault for driving for deposit protection and all the 'unintended consequences'.
Cumbrian NHS scandal
HBOS & RBS bakers paid millions for failure
Government caving into NLA and Shelter about deposit protection....dont forgot NLA make millions from deposit protection
We need a revolution.
The Government Departments of this country are now a disaster and not fit for purpose.
Poor and badly written legislation and an incomplete judgement show that those presiding do not have a firm take on matters.
If the deposit companies rules have been adhered to and they were sanctioned by the Government then it is their failure not anyone elses.
The judgement is usual for this country - you were wrong, even though you were doing what was asked of you - pay up and then take the thrid party to court - good luck taking the Governement to court.
The judgement should have stated that the legislation was flawed not the individuals involved.
Having strived to follow the rules and do everything correctly, I am now being told that some of that might be wrong. Consequences: potentially very damaging and expensive.
What a mess this country is in. Why can't we have rules and laws that are clear cut instead of always open to interpretation.
More work, more stress.
Ensure your tenancy agreement has a clause allowing it to continue under the same terms and conditions after the end of the fixed period so becoming a contractual periodic tenancy rather than a statutory periodic tenancy and the problem is resolved.