Done Up Like Kippers

EDITORS NOTE: The following article was submitted by George Crofts Llb (Hons), with whom I had a very educational and eye opening discussion last week regarding claims management and no-win-no-fee legal services for tenants. I personally invited George to submit an article so that our landlord, tenant and letting agent readers could ask George the types of question that I have done. George has very kindly dispelled several myths so please be kind to him and use this opportunity to learn more about the industry we are all so fearful of.  Over to George …. 

“Done up like kippers” was how one landlord described the state of deposit protection law following the Superstrike ruling.

For any that have missed this development, this case meant that a claim could be made against the landlord if they had not provided the Prescribed Information when a Statutory Period Tenancy (SPT) arose.

Many landlords grant Assured Shorthold Tenancies (AST) and allow them to develop into SPT without the need for documentation. The tenancy continues as before, under the same conditions but the contract renews month to month.

This court of appeal ruling held that an SPT is a new tenancy, distinct from the original AST. As a matter of law, a new deposit must have been paid. The old contract ended (AST), and a new deposit was payable in regard to the SPT (which takes over under the same conditions). The fact no money changes hands means nothing. When the old contract ends, the old deposit becomes payable to the tenant. The new deposit (for the SPT) is paid by way of setoff against the landlord’s obligation to return the original deposit.

As a point of law, it makes sense. Clearly an AST is a different beast to a SPT. The practical application means that the new deposit should be dealt with as such, a new deposit. The landlord must protect the deposit and serve the Prescribed Information.

If the landlord has already protected the deposit, (s)he doesn’t need to re- protect the deposit (it’s already in a scheme!). But, for every deposit taken, the landlord needs to issue the Prescribed Information.

The case also paved the way for the argument that multiple claims could be made where there is a succession of ASTs granted to the same tenant. The argument runs: If a SPT is a new tenancy then clearly a new AST is a new tenancy. Following the Superstrike logic, it must be that a new deposit is paid. Again, if the landlord has failed to provide the Prescribed Information at the start of each new AST a breach occurs.

Again, as a matter of law it makes sense. An AST is a lease granted over residential premises at a rent for a defined period. When you grant further ASTs these are clearly separate and distinct from the original lease in that they are for different periods of time. It is a matter of common law that a lease cannot be extended and any attempt to do so takes effect as surrender and re-grant. Whatever way you view the situation, when the original AST ends and the tenant stays in occupation, it’s under a new agreement.

The prospect of having to pay out simply because the Prescribed Information wasn’t given again when a new AST is granted or when a SPT arose caused widespread criticism. Nobody had told landlords to reissue the Prescribed Information (although the schemes produced some meek guidance on the matter after Superstrike). Most of the frustration in relation to this matter comes from landlords that have played by the rules, protected deposits and followed all available advice and have still ended up in breach because of Superstrike.

At the time, the Housing Minister Mark Prisk responded to lobbying from the RLA with a letter explaining he was ‘urgently exploring whether new legislation is required to clarify the situation’. Fast forward one year and here we have it, the answer is contained within the Deregulation Bill 2014.

Essentially, this adds more amendments to the original Housing Act 2004 (yes, that’s in addition to the amendments bought in by the Localism Act 2011).

The new S 215 A Housing Act 2004 protects landlords from pure Superstrike claims. Any landlord that has received a deposit before the original legislation (Housing Act 2004) came into force (April 6th 2007) has a chance to protect the deposit and serve the Prescribed Information within 90 days. When they received the deposit, the requirement to protect did not exist. If the tenancy is on-going and they are still holding the deposit, they now need to protect the deposit. If they do so, no claim can be made.
The new S 215 B and S 215 C protect landlords that have either granted further ASTs or allowed ASTs to become SPT where the deposit was paid after April 6th 2007. So long as the original deposit was dealt with in accordance with an authorised protection scheme and the Prescribed Information was served within the time limits, no claim can be made if the Prescribed Information was not served when the replacement AST was grant or the SPT arose.

The ramifications of this new legislation are very wide. All landlords that have dealt with their deposit correctly (from April 6th 2007) can breathe a sigh of relief. If you have protected the deposit on time, and served the Prescribed Information correctly, you cannot be caught out. You are deemed to have re-issued the Prescribed Information when the replacement AST or SPT was granted and cannot be pursued for any breach of deposit protection law.

So, is this the magic bullet solution that will fix all the issues? The simple answer is no.

Where a landlord has failed to deal with a deposit properly when the tenancy was granted a claim can still be made for the original tenancy and further ASTs or SPT where the deposit remains unprotected. For tenancies granted after April 6th 2007 and before April 6th 2012 this means that if you failed to protect the deposit within 14 days or failed to provide the prescribed information within 14 days you are still at risk.

For tenancies granted after April 6th 2012, the time limit of 30 days applies but the same is true: if you have failed to protect the deposit correctly for the initial tenancy you will face the penalties for that tenancy and further AST’s/SPT.

It is suggested that those most at risk are landlords that have received deposits after April 6th 2007 and before April 6th 2012. At that time, case law suggested that so long as the deposit was protected before court action was commenced, no claim could be made. As such, some landlords failed to protect deposit knowing full well that if they were ever called to account, they could protect before the claim was issued and avoid the penalty.

These landlords could now be facing claims for the original tenancy and subsequent ASTs/SPT.

The most important thing to remember is that the Deregulation Bill 2014 will only give protection to those that have dealt with the deposit correctly from the start. If you failed to deal with the deposit correctly, a claim can be made for the original tenancy and for each new tenancy that follows.

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