You will have come across the situation where a house is rented by a number of individuals who each have a room but share the living cooking and washing facilities - a shared house.   The house is either rented to all of the occupiers on a single tenancy agreement or perhaps the tenants each rent a room but share (under an implied licence) the rest of the house. 

None of the above is of any major difficulty but problems can arise when it comes to the collection of deposits, and particularly so when one tenant moves out and a replacement occupier for their room/share of the rent/ deposit is found.  When this happens, a new tenant usually pays the portion of the deposit originally paid by the departing tenant direct to that tenant.  The incoming tenant then “inherits” the outgoing tenant’s deposit position. The swap (or, as the Court referred to it, the “churn”) may happen with or without the knowledge and/or consent of the landlord and it is easy to see how such changes might occur several times until at some point none of the original tenants remain in occupation.

This is what happened in Sturgiss & Anor v Boddy & Ors (2021) EW Misc 10 (CC).  A claim was made by two of the former tenants for compensation based upon the allegation that the landlord had failed to protect the tenancy deposit in accordance with section 213, Housing Act 2004.

The two claimants were both replacement tenants.  By the time the claim was made in 2020 the tenants to the original tenancy agreement had left the property (some 15 years before!). The other (three) joint tenants from the relevant period were added as parties, as required for a claim by any one or two joint tenants, but played no part in the case. All tenants in 2020 had become tenants as a result of numerous assignments which had taken place with the landlord’s knowledge and consent at various points since the original tenancy was granted in 2004.

The claimants alleged that they were entitled to compensation in the amount of one to three times the deposit amount paid for the property, in accordance with section 214, Housing Act 2004. Back in 2004 when the original deposit was taken on the original grant of the tenancy the landlord had no obligation to protect the deposit and thus he did not do so then and had not done so since either.  He did not believe that he had to protect the deposit at any point since 2004 as he had himself taken any deposits from any tenant since 2004.  Insofar as deposits had been paid by incoming replacement tenants those had always been paid to the outgoing tenant by way of reimbursements and thus in a transaction that had not involved the landlord.

The Deputy District Judge accepted the landlord’s argument that:-

1. there was no surrender and regrant of tenancy with each new occupier, as the landlord was not actively consulted about the matter and did not have the opportunity to negotiate new terms;

2. anyway, these were not tenants but mere licensees, apparently on the basis of lack of exclusive occupation, and lack of a definable term or notice period; and

3. the deposits had not been paid to the landlord.

 The claim was dismissed with £6,000 costs awarded to the landlord. The tenants appealed.

The Appeal

HHJ Luba QC considered the relationship between the claimant tenants and the defendant landlord and found that it was clearly one of landlord and tenant. The Court considered that, on the facts, the claimants had had exclusive occupation, for a term, at a rent and that both sides’ conduct had evidenced recognition of there being a landlord and tenant relationship.

The Court found that on each “churn” or change of tenant there was a surrender and a re-grant of a new tenancy despite the landlord not being actively involved in the “churns”. There was a prior arrangement between the landlord and the tenants that at the departure of a tenant “the property would be treated as, in effect, re-let to those remaining and the new arrival(s)”. While arrangement did not require the landlord to participate in the execution of the “churn”, this was “a structure of the landlord’s own making” and HHJ Luba QC stated that the landlord “can hardly be heard to complain if the law gives effect to what has been agreed through the medium of surrender and re-grant”.

As a result on each “churn” a new tenancy had come into existence, which is an important point for the Court to clarify as landlords have legal obligations on commencement of a tenancy, for example the requirement to protect the tenancy deposit, provide the tenants with prescribed information, a How to Rent guide and gas safety certificates, etc. none of which had taken place in this case.

The Court applied the decision in Superstrike Ltd v Rodrigues [2013] 1 WLR 3848 where the Court of Appeal held that in certain circumstances a deposit taken at the commencement of an original tenancy may be treated as paid (again) and received (again) where a new tenancy follows immediately from an earlier one. HHJ Luba QC found that in this case the landlord must be treated as having been paid by each new tenant the deposit amount paid by the original tenants and each subsequent tenant.

With regards to the compensation payable by the landlord to the tenants, the Court rejected that it should be apportioning the deposit in accordance with the specific tenant’s contribution; this was not possible. HHJ Luba QC ordered that compensation is to be paid to the claimants for the full deposit paid for the property, and not the co-tenants, who could have joined the claim if they wanted to.

With regards to the amount of the multiplier HHJ Luba QC concluded:

“It seems to me that, although I have had regard to all the facts of the case and all the submissions of the parties, the following factors are particularly attracting of weight in this exercise:

1. The deposit was first taken at a time when deposits did not require protection;

2. The deposit has been retained and is still available and can now be protected;

3. The landlord has not subsequently protected it because he believed that the informal nature of the transitions for occupancy of the flat did not require him to do so;

4. n that view he was supported by his legal advisers and by at least one judge;

5. Those informal arrangements contained a method of ensuring each outgoing tenant received reimbursement of their ‘share’ of the deposit from their arriving replacement; and

6. The tenor of [the Landlord]’s evidence, and the undertaking of his counsel to the effect that – if the matter is ruled against him – he will promptly take the steps necessary to protect the deposit which he has held and retained over 15 years.

These features, and the other circumstances of this case, in my judgment put this right at the bottom end of landlord ‘culpability’ for breach of obligations.”

A penalty of one times the deposit, £1,205, was ordered for each of the three relevant ‘churns’, representing a total of £3,615 compensation.

Final thoughts

This is an interesting and important decision, which is likely to cause worry to landlords who are involved in similar “churning” arrangements. In light of this decision, landlords should be far more involved in such “churns” to ensure that they comply with their legal obligations on each re-grant of a tenancy.  Otherwise, not only will landlords find themselves exposed to claims or fines, landlords may struggle to recover possession of their property due to the complications that “churn” arrangements can cause.

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