Protecting deposits is key

The spotlight is once again on landlords after the decision in Charalambous and another v Maureen Rosairie Ng and another (Court of Appeal, December 2014).

The Court of Appeal in this case decided that the landlord's section 21 notice was invalid as the deposit had not been protected when the notice was served. This was despite the fact that the fixed term tenancy had come to an end and a periodic tenancy had commenced before 6 April 2007, when the tenancy deposit rules came into force.

What do we know so far?

The tenancy deposit rules came into force on 6 April 2007 and are set out in chapter 4 of the Housing Act 2004 (as amended by the Localism Act 2011). These rules stipulate that within 30 days of receipt of a deposit, a landlord must protect it in an authorised scheme, and send to the tenant and anyone that paid the deposit on the tenant's behalf, the prescribed information. Non-compliance with the tenancy deposit rules can result in a tenant being awarded damages of between one and three times the amount of the deposit, and it will invalidate the section 21 notice.

We already know from the famous Superstrike v Rodrigues case that if a fixed term tenancy was entered into before the tenancy deposit rules came into force, but it changed to a periodic tenancy afterwards, a deposit must be protected and the prescribed information must be sent out, within 30 days of the tenancy becoming periodic. The reasoning behind this decision was that a periodic tenancy was deemed to be a new tenancy and so the tenancy deposit rules would apply in the same way as if a new tenancy had been entered into.

We also know from the recent unreported case of Gardner v McCusker that even if a fixed term tenancy was entered into after the tenancy deposit rules came into force, the tenancy deposit rules must be complied with and the prescribed information sent out within 30 days of a periodic tenancy commencing, notwithstanding the fact that the rules may have already been complied with at the start of the fixed term.

The impact of Charalambous

The Charalambous case concerned a fixed term tenancy that ended and changed to a periodic tenancy, before the tenancy deposit rules came into force. A landlord does not have to register a deposit in this scenario, because the tenancy deposit rules were not in force when it was taken or when the tenancy became periodic.

However, the Court of Appeal has now clarified that a section 21 notice will not be valid, unless the tenancy deposit rules are complied with at the point it was served.

This means that even where the tenancy commenced or changed to a periodic tenancy before 6 April 2007, before a valid section 21 notice can be served on a tenant, the deposit must either be returned to the tenant, or the deposit must registered with a scheme.

Charalambous did not decide whether the prescribed information would also need to be served before a section 21 notice can be valid, but given the earlier decisions of Superstrike and Gardner, if a deposit is put into a scheme, it would also be wise to send out the prescribed information.

Landlords will be happy to know that the Court of Appeal did not impose any sanctions on the landlord for failing to comply with the rules, which was likely because there was no possible way that the tenancy deposit rules could have been complied with at that time. That is not to say this will not change in the near future…