There are still some questions to be cleared up on tenancy deposit law and this Court of Appeal case neatly deals with one of them, while opening up what might be a very large can of worms.
Superstrike Ltd v Rodrigues  EWCA Civ 669
Where a deposit was taken on an assured shorthold tenancy before April 2007, when the Housing Act 2004 provisions came into force, but the tenancy became a statutory periodic tenancy after April 2007, does the deposit fall to be dealt with under the Housing Act 2004 requirements and do the penalties for non compliance apply?
The facts in this case are straightforward. Rodrigues was the assured shorthold tenant of Superstrike. The tenancy began in January 2007 with a term of 12 months. A deposit of £606.66 (a month's rent) was paid in January 2007. In January 2008, the tenancy became a statutory periodic tenancy. In June 2011, S served a s.21 Notice and then brought possession proceedings. In May 2012, the possession claim was dismissed, though for reasons not at issue in this appeal. On appeal to a Circuit Judge, a possession order was granted, on the basis that the deposit had been taken before April 2007. So, to the Court of Appeal.
There was one main ground of appeal.
On the statutory periodic tenancy arising in January 2008, a deposit was received in respect of a tenancy, which fell under the requirements of s.213 HA 2004, thus failure to protect meant s.215 applied and the s.21 Notice was invalid.
There were two questions for the Court to decide. First, did the statutory periodic tenancy constitute a new tenancy? Second, had the deposit been 'received' by the landlord in respect of that tenancy in the meaning of section 213.
The Court of Appeal made short shrift of the first issue:
It is clear from the 1988 Act that what happens at the end of the fixed period tenancy is the creation of a new and distinct statutory tenancy, rather than, for example, the continuation of the tenant's previous status. I do not see that there can be any doubt as to that. It was so held in relation to a comparable provision in the 1988 Act in N & D (London) Ltd v Gadson (1991) 24 HLR 64.
This left the second issue, of whether the deposit had been 'received' in January 2008 at the start of the new statutory periodic tenancy. The landlord argued that:
section 213 only applies when the deposit is "physically received" after 6 April 2007. By physical receipt he meant payment by cash, cheque, bank transfer or in some other comparable way, such as occurred in the present case in January 2007. He supported this argument by a submission that, if the appellant's contention were correct, many private landlords would have been caught, and caught unawares, by a need to comply with section 213 on the expiry, after the commencement date, of a fixed term assured shorthold tenancy created before that date, if the tenant remains in possession, no new tenancy agreement being entered into, and the deposit, which had previously been paid and was still held, simply staying where it was with nothing said about it. He pointed to the absence of any transitional provision in the Act or in the commencement order. If so, he argued, the landlord would have to go to the otherwise unnecessary and pointless trouble and expense of arranging for the deposit to be held in accordance with an authorised scheme, simply in order to be able to recover possession of the premises by serving a section 21 notice.
R argued that
even though no money changed hands and no book entries were made at that stage, nevertheless the landlord had to be treated as having received the amount of the deposit, referable to the new tenancy, on 8 January 2008. Otherwise the deposit would only have been held as security for obligations and liabilities under the original fixed period tenancy, which would make no sense, at least for the landlord. If the landlord is, therefore, treated as holding the deposit in relation to the new tenancy, it must be treated as having received it for that purpose.
As s.212(8) referred to money in the form of cash or otherwise, it was clear that it didn't have to be physical currency, payment by cheque or bank transfer could amount to payment and receipt. This provision should be construed broadly. Payment had been held to cover situations other than cash, cheque or bank transfer in White v Elmdene Estates Ltd  1 QB 1,  AC 528, where an obligation to give a £500 discount on a sale associated with a tenancy letting had been found to be payment of a premium. This had been approved in Hanoman v Southwark London Borough Council (No 2)  UKHL 29.
The Court of Appeal agreed with R.
The 2004 Act has to be construed in the light of the provisions of the 1988 Act as regards assured shorthold tenancies, including section 5. Once the new statutory periodic tenancy had come into being after the commencement date, a tenant's deposit being already held, it would be necessary to consider whether and if so how the 2004 Act applied. As I have said already, it must have been the landlord's position, by then, that it held the sum of £606.66 as a deposit as security for the performance of the tenant's obligations, or for the discharge of any liability of the tenant, arising under or in connection with the new tenancy. That could only be the correct legal position if that sum of money was to be treated as having been paid pursuant to the tenant's obligation under the periodic tenancy to provide a deposit. That obligation only arose on the expiry of the fixed term tenancy, so the payment at the beginning of that fixed term cannot have given rise to the position which obtained once the fixed term had expired. [...]
The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord's obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement.
It follows that, on my analysis, the tenant did pay, and the landlord did receive, the sum of £606.66 by way of a deposit in respect of the new periodic tenancy in January 2008, and so the obligations under section 213 applied to the deposit so received. As is common ground, they were not performed. Section 215(1) therefore applied so that the landlord could not validly give notice under section 21 of the 1988 Act. The notice purportedly given on 22 June 2011 was thus ineffective and the grounds for possession were not made out.
As there had been no claim by the tenant, as yet, for the return of the deposit and a penalty under s.214, the only order was for the dismissal of the possession claim.
Intriguingly, but also frustratingly, the Judgment notes a second line of appeal by the tenant, that the wording of s.215(1) meant that no s.21 notice could be served if a deposit was not protected, regardless of when the deposit was received, so even if taken for a statutory periodic before April 2007. There was not need to decide on this and it was left for another case, where the facts of this case wouldn't apply.
It is good to finally have this point settled by the Court of Appeal. I have long argued that a statutory periodic was a new tenancy, and that in order for the landlord to hold the deposit against the tenant's performance of that new tenancy, the deposit must have been received anew, even if by a notional set off against repayment of the old deposit. But apparently this decision has come as a surprise in some quarters.
The s.215(1) argument remains to be heard. It is also worth recalling that the commencement order for the Localism Act 2011 amendments to Housing Act 2004 stated that the amended scheme applies to all deposits held for ASTs in effect on or after the commencement date, with no exemption for pre April 2007 deposits. But even if successful, these arguments would now only be required where a tenancy had become a statutory periodic prior to April 2007.
There is a further issue, however. If a deposit is 'retained' from one tenancy to the next (whether statutory periodic or new tenancy agreement), and therefore 'received' in respect of the new tenancy, there is also the obligation to provide the prescribed information. So even if the deposit was already protected, when a tenancy goes from fixed term to statutory periodic, does the obligation to serve the prescribed information arise again? While the actual information may be unchanged, and has arguably already been served ahead of the new tenancy, it might also be the case that it should be served again when the deposit is 'received' in respect of the new tenancy.
If the prescribed information is not served within the 30 day period (since April 2012), no s.21 notice is valid until it is served (and a failure to serve within 30 days opens up a potential s.214 claim). So, if there is a requirement to serve the information again on a new tenancy, whether statutory periodic or by agreement, when the deposit is held over/received again, I suspect that a very large number of landlords and/or agents would be in breach. I expect to see this issue come up very soon indeed.
Congratulations to Martin Westgate QC and Ben Chataway for the tenant for this case.