It is now well known that if a deposit taken in connection with an assured shorthold tenancy (‘AST’) is not protected with a Government approved scheme within the prescribed timescales (from 06 April 2012, that being 30 days), the landlord is unable to serve a Section 21 notice seeking possession of the property until the deposit is returned to the tenant, and may still then face a claim for financial penalties of up to three times the value of the deposit.

In the recent case of North v Tyndale (2018) heard before the County Court at Clerkenwell and Shoreditch, the Court sent a warning to landlords that the sanctions above will apply not only where the deposit is protected late (or not at all), but also where the deposit ceases to be protected.

Background

The case concerned an AST granted for an initial 12 month fixed term from 25 July 2013, expiring on 25 July 2014. A deposit of £1,300 was paid by the tenant, but it was not protected by the landlord until January 2014 - almost six months later.

The AST became a statutory periodic tenancy on 25 July 2014 when the fixed term expired. At that time, it was a requirement of the scheme provider (MyDeposits) that the deposit be re-protected when the fixed term expired. As a result, the deposit ceased to be protected shortly after the AST became statutory periodic.

The landlord did, however, protect the deposit again, but not until February 2017 - over two years later. As a result, the deposit was not registered for a period after the AST became statutory periodic.

Subsequently, in November 2017, the landlord served a Section 21 notice.

Issues

The tenant defended the claim and argued that the Section 21 notice was invalid. She also counterclaimed for financial penalties (amongst other purported landlord breaches of covenant).

The landlord argued that changes introduced by the Deregulation Act 2015 applied such that the initial delay in protecting the deposit in 2014 did not invalidate the subsequent Section 21 notice.

The Deregulation Act 2015 introduced a new Section 215B into the Housing Act 2004, which was brought in to effectively overturn the previous authorities which had been established, requiring a deposit to be re-registered once the AST became a statutory periodic tenancy.

Section 215B applies where a deposit is taken after 06 April 2007 in connection with an AST which has been protected and the initial requirements of the scheme complied with (ignoring any timescales for compliance). If that deposit continues to be protected with the same scheme when a new AST comes into being (including a statutory periodic tenancy), then the landlord is treated as having complied with the requirements in relation to the that deposit for the new AST. Put simply, there is then no need to re-protect the deposit.

The landlord argued that as the deposit has been protected before the new AST (e.g. the statutory periodic tenancy) came into effect, Section 215B would apply.

The outcome

The Court disagreed and found that the Section 21 notice was invalid.

The Court accepted the tenant’s arguments that Section 215B did not apply as the deposit had not been continuously protected by the scheme, it having ceased to be protected shortly after the statutory periodic tenancy came into effect under MyDeposits’ rules and not protected again until February 2017.

Comments

The Court’s decision, whilst not raising anything new, shows that the Courts are continuing to take a strict line when it comes to the protection of tenancy deposits. The result being delay and expense - including legal costs and potential financial penalties - for landlords.

Indeed, we are seeing an increasing number of Section 21 possession claims being challenged on technical breaches of the tenancy deposit rules or the requirements introduced by the Deregulation Act 2015 relating to the provision of prescribed documents to tenants.

It is vital that any deposit taken in connection with an AST is protected and prescribed information provided to the tenant within time and that the deposit remains protected throughout the duration of the tenancy, including any new tenancy. In this respect, it is important that landlords and agents check with their scheme providers what their requirements are when the fixed term comes to an end and either a new fixed term AST is granted or the tenancy rolls over as a statutory periodic. We suspect that most scheme providers have updated their requirements following the Deregulation Act 2015 changes such that there is no requirement to re-register, but this should be checked with the relevant scheme provider.

If you have any queries or require any advice regarding tenancy deposits or possession claims generally, please do get in touch on 01435 897297 or at info@kdllaw.com.

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