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The tenancy deposit scheme strikes again

A recent decision by the Court of Appeal shows that the tenancy deposit scheme is still a source of aggravation in the residential sector.

The facts of the case were simple. Superstrike Ltd granted an assured shorthold tenancy to Mr Rodrigues on 8 January 2007 for a fixed term of just under a year. Rodrigues paid a deposit to Superstrike but as the tenancy deposit scheme was not yet in force, Superstrike did not need to protect it.

At the end of the term, Rodrigues stayed in the premises and continued to pay rent. Superstrike continued to hold the deposit. Unsurprisingly, the parties did not consider what the legal effect of this arrangement was.  If they had, they might have realised that Superstrike was deemed to have granted a new tenancy to Rodrigues on the same terms as the expired one. In the meantime, the tenancy deposit scheme had come into force in April 2007.

In June 2011, Superstrike sought possession of the premises. However, a landlord is not entitled to possession if it has failed to protect a tenancy deposit in accordance with the scheme. Rodrigues argued that the deposit should have been protected after the fixed term ended in January 2008 and, as it had not, Superstrike was not entitled to possession.

Superstrike argued that because the deposit was physically received before the scheme came into force, it did not need to be subsequently protected on the deemed grant of the new tenancy. Superstrike said that if the Court found in the tenant’s favour, many landlords would be caught unawares and would need to go to the unnecessary and pointless trouble of arranging for the deposit to be protected simply to be able to recover possession.

The Court was not persuaded. Superstrike was treated as holding the deposit in respect of the new tenancy. As Superstrike had failed to protect the deposit, its attempt to end the tenancy and recover possession was invalid.  It could have been worse: Rodrigues could have sought payment of the penalty for failing to register a deposit which, in 2008, would have automatically been three times the amount of the deposit rather than the current rate of between one and three times the deposit.

Lesson number one: landlords should actively manage their portfolios.  Lesson number two:   if the tenant stays on after the end of a fixed term, the landlord should either grant a new lease or remember that a tenancy will be implied by law.  Lesson number three: the landlord should ensure that (a) the tenancy is properly protected within an approved tenancy deposit scheme and (b) the prescribed information is given to the tenant. It seems that any departure from these rules constitutes a very large pit into which an unsuspecting landlord could fall.

Superstrike Ltd v Rodrigues [2013] EWCA Civ 669.