Update of Tenancy Deposit Protection (TDS)

Further to my blog,’ When does a Landlord have to protect a deposit? (Superstrike v Rodrigues)’, a recent case from the Court of Appeal considers further the protection of deposits taken in respect of an assured shorthold tenancy (AST).

Charalambous & Anor v Maureen Rosairie Ng & Anor, considered whether a section 21 notice will be invalid if a landlord fails to protect a deposit held before 6th April 2007.

Since 6 April 2007, it has been mandatory for landlords to join a TDS, where a deposit is paid by the tenant on the creation of an AST. Landlords are unable to serve a valid section 21 notice if the deposit is not held in a TDS or if the initial requirements have not been complied with. This is the case even if the landlord takes steps to protect the deposit late, because it will have failed to comply with its obligations within the required period.

There have been several cases which have raised issues with the current legislation with regards to deposits.

In the case of Superstrike, a fixed term tenancy was granted before April 2007 which became a statutory periodic tenancy after April 2007. The court held that the requirements under the Act also applied to statutory periodic tenancies. Therefore, it was held that the statutory periodic tenancy is a new tenancy and the deposit, paid before April 2007, should have been registered with a TDS when the statutory periodic tenancy arose.

In Gardner v McCusker, the principle established in Superstrike was considered again. The court held that where a deposit had been protected in a TDS at the start of the fixed term, it should be re-protected when a statutory periodic tenancy arises. The County Court Judge held that the prescribed information had to be re-served within 30 days of the statutory periodic tenancy arising. Whilst this is only a County Court decision and therefore is not binding on other courts, the case provides guidance to landlords.

In Charalambous v Ng the case concerned an AST which was granted before April 2007, (prior to the Housing Act coming into force). The Court of Appeal accepted that there was no obligation to register a deposit received prior to April 2007. Nevertheless, the prohibition on serving a notice under section 21 still applied.

The tenants had several fixed term tenancy agreements between 2002 and 2004. The original deposit was carried over against the renewed tenancies. When the last tenancy expired in 2005 the tenancy became a statutory periodic. In 2012 the landlord served a Section 21 notice requiring possession of the property. However, the tenants argued that the notice was invalid as the deposit had not been protected within a TDS.

The District Judge held that the notice was valid. The Defendants appealed and the Court of Appeal decided that it is not possible to serve a valid s21 notice unless a deposit is protected.

In summary, this decision is likely to affect a large number of landlords with long term tenants as the court has decided that the Act does not only apply to tenancies beginning after 6 April 2007. The Deregulation Bill is due to come into effect this year which will reform the rules governing registration of residential tenancy deposits in relation to statutory periodic tenancies entered into after 6 April 2007. However, it is interesting to note that this bill does not address and will need amending to enable it to deal with deposits taken prior 6 April 2007, as in this latest case.

We would advise landlords to ensure that they check any deposit taken is protected and to be careful and review the situation when a fixed term tenancy becomes a statutory periodic tenancy. If the deposit has not been protected correctly, a landlord may want to consider returning the deposit in full or agree deductions prior to service of the notice.

If you have any queries with regards to serving a Section 21 notice or protecting a deposit please contact me on 01202 525333.