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Update: Superstrike and deregulation of deposits

Superstrike and deregulation of deposits: what the new act means, by Steve Harriott.

Steve Harriott,

Steve Hariott imageSteve Harriott, CEO of the Tenancy Deposit Scheme, explains the latest changes in tenancy deposit protection law.

Now in its eighth year, tenancy deposit protection has been a major step forward for the Private Rented Sector. However it is true to say that the legislation governing it has not had the smoothest of journeys, with numerous court judgements directly impacting landlords and agents on the front line.

Now the Deregulation Act has arrived to clarify the law, taking a significant weight off the shoulders of landlords and agents. However some must act quickly to get their house in order, before the full weight of the Housing Act falls upon more deposits after 23rd June.

SUPERSTRIKE VS RODRIGUES

What prompted the Deregulation Act? The catalyst for change was the Superstrike vs Rodrigues judgement handed down by the Court of Appeal in 2013. The deposit was received before the Housing Act came into force, and the tenancy became statutory periodic after the Act, in 2008.

The judge considered that on the tenancy becoming periodic, “the landlord did receive a deposit from the tenant…and it therefore came under the obligations set out in section 213 [of the Housing Act]”, despite no money changing hands.

This had two implications. Firstly, if a deposit was taken before 6th April 2007 and the tenancy became statutory periodic after that date, it should have been protected when the tenancy became periodic.

The second, more controversial implication was that deposits should be re-protected and new prescribed information served whenever a statutory periodic tenancy arises; changing our understanding of the law.

CHARALAMBOUS VS NG

In this second catalyst case, a statutory periodic tenancy began before 6th April 2007 and the deposit was not protected – nor was it required to be. No financial penalty applied but the judge ruled it was still grounds on which to refuse a section 21 notice.

The legislation did not specify that refusal of a section 21 notice was conditional on the date the deposit was received. So again, an existing consensus on the law was changed.

WHAT THE DEREGULATION ACT MEANS

The Deregulation Act has clarified the situation.

If you received the deposit on or after 6th April 2007

The most controversial implication of the Superstrike case has been changed. If a tenancy is being replaced by a fixed term or statutory periodic tenancy and the deposit was correctly protected, it does not need to be protected again nor new prescribed information served. This comes with the caveat that the tenant(s), landlord(s), premises, and tenancy deposit protection scheme remain the same.

This applies retrospectively from 6th April 2007.

If you received the deposit before 6 April 2007

If the tenancy became statutory periodic before 6th April 2007 there remains no financial penalty for not protecting the deposit. However, in line with the Charalambous decision, a section 21 notice cannot be used to regain possession whilst the deposit is held and unprotected.

If the tenancy became statutory periodic after 6th April 2007 it is now confirmed that the deposit must be protected and prescribed information served.

Landlords have a grace period to get their house in order lasting until 23rd June 2015, after which the full requirements and penalties of the Housing Act will apply.

SCHEME RULES VS LEGISLATION

It’s important to note that the rules of your scheme membership may still require you to re-protect a deposit when a tenancy changes. At TDS, deposits protected under a letting agent’s annual membership don’t need to be re-protected.

However when protecting on a ‘pay as you go’ basis, they do need to be re-protected if there are material changes to the original agreement or a new fixed term tenancy created.

You should check with your own scheme the procedure for re-protection of a deposit.

Deregulation Act at a glance

Superstrike and deregulation of deposits:✔ Deposits do not need to be re-protected, nor prescribed  information re-served if tenants, landlords, premises and deposit protection scheme remain the same.
✔ Deposits received before 6th April 2007 held against statutory periodic tenancies which arose on or after that date must be protected by 23rd June 2015.
✔ A section 21 notice cannot be served on any tenancy where an unprotected deposit is held.

May 7, 2015

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