Tenancy Deposit on 'Renewal of Tenancy'

Our grateful thanks to the Painsmith blog again for news of another Tenancy Deposit case (and for giving me something to write about in these case bereft times).

This is a County Court case on the issue of ‘renewal’ of a tenancy that started before April 2007 and the introduction of the tenancy deposit rules. Where a deposit was taken for a tenancy prior to April 2007 there is no requirement for it to be protected. But when the tenancy is subsequently ‘renewed’ – actually a new assured shorthold tenancy – but the deposit ‘held over’ from the previous tenancy, does the deposit need to be protected?

This has been the topic of some argument, focusing on the definition of ‘receives a deposit’ in s.213 Housing Act 2004. My view has always been that this did not mean solely the physical transfer of cash or cheque and that the parties’ agreement that the deposit should be transfered to the new tenancy constituted the landlord ‘receiving’ the deposit.

I’m glad to see that HHJ Cryan at Clerkenwell & Shoreditch County Court agrees. This is not, of course, a binding judgment and other County Courts may well find otherwise, but I presume that the Clerkenwell District Judges will follow the Circuit Judge on this one.

I’m aware that Francis Davey, an NL contributor takes another view. Over to you, Francis?

As Painsmith’s blog rightly observes, this leaves the issue of when a fixed term assured shorthold lapses into a periodic tenancy under s.5 HA 1988 without a new AST being agreed. The weight of opinon seems to be that this is a continuation of the AST, but s.5 states that the periodic tenancy arises at the expiry of the fixed term tenancy. Arguably a new (periodic) tenancy and thus requiring deposit protection? No-one has run this yet…

[For all tenancy deposit case posts click here]

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Assured Shorthold tenancy, Deposits, Housing law - All and tagged , , .

16 Comments

  1. Francis Davey must be right, surely. s213(1) refers to a deposit “paid” and “received” – it would be stretching it a bit to say this covers some notional passing on. Also consider a case where the landlord renews, say for a second year. If the proper interpretation is that there is a refund and then repayment of the original deposit, wouldn’t the landlord be waiving the right to claim for waste for anything that happened in the first year?

    I think I know who the landlords were in HHJ Cryan’s case – if so they are deeply obnoxious. Might be that had an influence.

    Great site btw

    • Thanks for the compliment. We does our ‘umble best.

      In Francis’ absence, my understanding of his view is that, on a strict or literal reading of HA2004, the requirement to protect the deposit applies to all AS tenancies, whether the deposit was taken before or after April 2007. The only variance is on the requirement to provide the ‘required information’. I’m sure Francis will correct me if I’m wrong.

      But on your points, surely the issue is not ‘passing on’ or ‘renewal’. I think it never was, but the HA 2004 has brought this into focus. A ‘renewed’ AST is a new tenancy (and as Painsmith suggest, there is an argument for the fixed term to periodic transition as well).

      From that it follows that a deposit taken (and possibly expressly so in the tenancy agreement) in relation to that tenancy, has to be consensually paid and received in respect of the new tenancy, even if no money has changed hands. Otherwise, the landlord surely has no power to make deductions for the period of the new tenancy. If the new tenancy agreement makes reference to a deposit for that tenancy, or arguably even if it doesn’t, then the deposit has been received for that tenancy, should be protected and, yes arguably, deductions can only be made in respect of the period of the new tenancy, not the previous one. As we are talking about a new tenancy, why should this be a surprise?

      Any sensible landlord should be inspecting at the end of the old tenancy, agreeing deductions – if any – to be made from the deposit, accepting the remnant and asking for a top up to constitute the contractual deposit for the new tenancy (and protecting it, of course).

      But then, I am routinely amazed that many private landlords appear unaware of the nature of a statutory periodic tenancy and seen to think that they have to ‘renew’, which, unless the landlord wants a certain term that they can sue on, is surely primarily in the tenant’s (and the letting agents’) interests. Although, arguably, the landlord would also be wise to inspect and propose deductions at the end of the fixed period as well.

  2. Periodic ASTs dont necessarily benefit landlords. Although it *seems* that it gives tenants less security of tenure – this isn’t really the case.

    It means the tenant can leave with only one months notice (while still taking about 4 for a landlord to gain possession – ie going through the whole process – notice to warrant)

    Also – the S21 notice requirements are more stringent if the notice is issued to a periodic tenant.

    So while some landlords may renew because they think they have to – others probably do it because it’s actually in their interests to do so.

    When I took on my current private tenancy I know that *I* as an informed tenant specifically wanted periodic status. (kind of frustrating that I have a fantastic landlord who does everything right!)

    Cait

    • Fair point, Cait, but I’ve heard and seen plenty of small private landlords who don’t even appear to be aware of periodic tenancies, possibly because their letting agents get fees on ‘renewal’. And four months to possession is still a lot shorter than 8 months ;-)

      I’m on a periodic with my landlord, who is, I hasten to add, a paragon, and was even before I headed into housing law.

  3. Ah, so I guessed wrongly about Francis’ alternative view.

    Still I struggle to see that the scheme should be read as applying to renewals. I suspect I’m not alone – none of the published leaflets/web based info etc warn it will apply to renewals. The reference to ‘received’ is at best ambiguous – if the provisions were really intended to apply to renewals, where no £ changes hands, surely it should have said so more clearly? Guess the drafting throughout is, though, a bit pants.

    I wouldn’t fancy my changes of recovering a 3x penalty award based on a deposit paid before 2006…

  4. I believe that some of the TDS schemes leaflets and guidance do state that renewal tenancies should see the deposit protected.

    If you were after the 3x on a deposit paid before 2006, evidently Clerkenwell & Shoreditch is the Court to go to – CJ’s decision should lead the DJs there…

    • It was County Court, so unless it is being appealed, I doubt that there is a transcript.

      According to Painsmith, it appears that James Browne at Lamb Chambers was involved – you could try him.

  5. We had a last minute N244 application rejected this morning – possession granted under Section 21 but deposit not registered (first AST 2006 and last AST agreement signed December 2007). Judge adamant that as the deposit was taken in 2006 before the introduction of the DPS there is no requirement to register, even though the last AST agreement was signed after the DPS started. Pity it wasn’t Clerkenwell& Shoreditch… PS I think NL’s right about the TDS info on renewal tenancies.

  6. I’m dealing with a case where the AST started in Sept 05. Renewal every 6 months which should be reasonably arguable that this was a new handing over of deposit monies.. it goes to the spirit of the regulations. Especially as original contract (like many) done through an agent, then LL takes it over.

    In any event, the AST was allowed to roll into a stat. periodic tenancy in March ’06 (which is arguable as an AST on the facts of the case, but no new agreement signed and no term obviously set although implied, so tricky!)… pre Apr 06 deposit, term ended Mar 06, no new contracts…. a clever landlord or good timing?

    Intention goes a long way.

    Now the tenancy has come to an end (Dec 08), LL is witholding deposit. The County Court will be asked to rule on the renewal of the agreements bringing the monies into the TDP; to proactively apply the 3 x penalty. There is simply no reasonable justification for periodic tenancies to not be covered by the TDP.

    We will be running it and will find out im sure ….

    • But if the periodic started in March 06, how are you going to claim new tenancy after April 07?

  7. What if the AST reverted to a new periodic tenancy on 1st April 2007 (for arguments sake) … is it right that the TDP shouldnt apply?

    Is this about literal applications or for a wider policy implication? It surely depends on the reading and application, or rather, the skill of the advocate.

  8. Found the above discussion extremely interesting.

    Have a letting agent client who has a very angry landlord client who is on the wrong end of a County Court judgement to pay the tenant 3 X deposit. The original tenancy and payment of the deposit pre-dated the TDS, but the renewal tenancy did not.

    The rent remained the same cross both tenancies – so no actual refund and re-payment of the deposit money.

    My argument is that the landlord’s obligation to refund the deposit at the end of the first tenancy has been set off against the tenant’s obligation to pay a deposit in respect of the renewal tenancy. If there is no more than a set off, has a deposit been “paid” or “received” within the meaning of the Act. I would not have thought so BUT…

    Be grateful for any comments, and pointers to any higher authority, or any more County Court decisions on point- cannot find any.

    regards

    Stan Gallagher
    Tanfield Chambers

    • Stan, if your view on ‘set-off’ is right, how could the landlord make deductions from the ‘deposit’ in respect of damage done during the new tenancy?

    • Argument not view at this stage – still the point is that the tenant has not actually paid a deposit re the renewal tenancy and the landlord has not refunded the deposit re the original tenancy – both required by the tenancy agreements and, taken together, obligations that cancel each other out – what has happened is that the original deposit has simply been rolled over in the time honoured way – bound to be a set off argument in there somewhere?

    • Not sure I’m seeing it. It would have to mean that there was no valid deposit for the current tenancy (the landlord having failed to return previous deposit, tenant having failed to provide one). Second, it would be pretty easily rebuttable. Any indication from the landlord, tenant or both that the deposit was (also) considered to be for the current tenancy would surely cause a set-off based on mutual breach argument to fail.

      I’ve had my say on the ‘actual handing over over cheque/cash’ point above. I think it is sufficient that the LL has ‘received the deposit in respect of the [new] tenancy’. That LL, tenant or both have waived the formality of a cheque or cash being passed backwards and forwards doesn’t mean it hasn’t been ‘received’.

      And surely, set-off is a remedy, not an actual state of affairs? If the LL is saying ‘you have failed to pay me a deposit on the new tenancy, so I’ll take the money from the previous deposit rather than returning it’ and the tenant acquiesces then there is clearly receiving going on.

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