The Court of Appeal has again thrown the cat among the tenancy deposit protection pigeons.
In Charalambous it had to grapple with the, admittedly fairly rare scenario, of a deposit taken entirely before the tenancy deposit protection schemes came into force where the tenancy had become periodic also prior to the protection schemes coming into force. To be clear in Superstrike v Rodrigues the deposit had been taken before the schemes came into force but the tenancy had then become periodic after the schemes came into force. Following Superstrike most commentators, me included, took the view that as there had been no receipt of the deposit during the time in which the tenancy deposit protection rules were in force there was no issue. Clearly we were wrong, at least LJ Lewiston who gave the sole decision thinks so.
Here N had given a tenancy which commenced in August 2002 for a fixed terms of one year. It was renewed for a further year in 2003 and 2004 then from 2005 became a statutory periodic tenancy and remained so. A notification under s21, Housing Act 1988 was served in October 2012. It was held valid at first instance and the tenants appealed.
There was no suggestion by the Court that the landlord was liable for any of the financial penalties. It was argued for N that she was not liable for the penalties under s213 and s214 and that the law should not be interpreted in such a way as to suggest that Parliament had intended that those penalties should apply to N immediately on the legislation coming into force. There was a fair bit of discussion here as to the nature of retrospective legislation. The upshot of this is that the Court made clear that retrospective legislation is possible but it must be clear that this is what Parliament intended.
S213 or S215
The Court resolved this issue by agreeing that s213 did not apply here as the deposit had not been received by the landlord at a time when the legislation applied. Accordingly, Parliament had not applied any form of retrospective penalty. However, the Court did not accept the follow on argument that s213 and s215 were inextricably linked such that a landlord could only be liable for penalties under s215 if they had fallen foul of s213. This is an interesting point. It is accepted that a landlord can be liable for penalties under s213 where they are not liable under s215 if they have acted to rectify their mistake in one of the ways permitted by s215. However, the Court has now created the converse situation. It looked closely at s215 which now reads:
215 Sanctions for non-compliance
(1) Subject to subsection (2A), if a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when–
(a) the deposit is not being held in accordance with an authorised scheme, or
(b) section 213 (3) has not been complied with in relation to the deposit.
(2) Subject to subsection (2A), if section 213 (6) is not complied with in relation to a deposit given in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy until such time as section 213 (6) (a) is complied with.
(2A) Subsections (1) and (2) do not apply in a case where—
(a) the deposit has been returned to the tenant in full or with such deductions as are agreed between the landlord and tenant, or
(b) an application to the county court has been made under section 214 (1) and has been determined by the court, withdrawn or settled by agreement between the parties.
The Court made much of the phrase “at a time” in s215(1). It held that this phrase meant that there might be “a time” when the requirements of s215(a) or (b) had not been complied with even if there was a previous time when they had been. Additionally, it held that the two obligations in s215(a) and s215(b) were disjunctive. A landlord had to meet both of them to avoid the penalty applying. There was some discussion about whether the landlord had met the requirement in s215(b) but the Court declined to rule on this definitively as it was not required. It indicated that if it had to rule it would probably have concluded that the requirement in s215(b) had not been breached as N was not obligated to protect the deposit under s213. However, the Court ruled that the requirement in s215(a) was breached because the deposit was not being held within an authorised scheme. Accordingly, therefore it took the view that the notification served by the landlord under s21 could not be valid because of the clear restriction in s215(1) and the fact that the landlord had not been able to rely on any of the savings found in s215(2A).
Retrospection and the Order
The Court drew further support for its conclusion on the main point and on the retrospective penalty argument from the wording of the Localism Act 2011 (Commencement No. 4 and Transitional, Transitory and Saving Provisions) Order 2012. This brought the amended tenancy deposit provisions provided by the Localism Act into force on 6 April 2012. However, a provision contained in Article 16 of that Order which held that the amendments would apply to any assured shorthold tenancy “in effect on or after 6th April 2012”. The Court found that it was clear from this provision that Parliament fully intended at the time of the Localism Act being introduced, if it did not before, that there should be a degree of retrospection about this matter and that the penalties should bite to some degree on all tenancies then in existence. It gained yet more support from this because the Article gave a “grace period” for landlords to resurrect their position of 30 days from 6 April 2012 when they could place a tenancy deposit into an authorised scheme.
I should mention that the Court appeared to indicate that it would have taken the same view irrespective of whether it was considering the law under s213 and s215 as originally enacted or whether it was considering the law, as it was, after amendment by the Localism Act 2011.
Deregulation and Amendment
Interestingly, the deposit legislation is in the process of being amended (again) by way of s30 of the Deregulation Bill which has recently finished its committee stage in the Lords. This inserts new sections 215A to 215C into the Housing Act 2004 primarily to resolve issues caused by Superstrike. Initially I though that this might also resolve the problems in this case. Unfortunately it doesn’t. As the Court of Appeal itself noted the Deregulation Bill changes do not fix this situation. S215A which has the potential to resolve the issue does not resolve this issue because it only protects landlords where a deposit was taken prior to the introduction of the tenancy deposit legislation (s215A(1)(a)) and the tenancy became periodic “on or after” 6 April 2007 (s215A(1)(b)). The Court of Appeal has pointed out that the vehicle is there to fix the issue. From my reading of the Deregulation Bill changes the fix is actually easy. If the wording of s215A(1)(b) is altered so that instead of beginning “on or after” it begins “before or after” that would resolve the issue immediately. Whether the government will do this remains to be seen. I don’t doubt that there will be lobby groups encouraging them strongly to do so.
One other side point worth noting is that in the past there has been some doubt as to what the situation is if a landlord protects a deposit with a scheme but, due to the landlord no longer paying he scheme membership fee for example, that protection terminates. Arguably the penalties under s213 and s214 do not bite because at the trigger event, the receipt, the landlord had dealt properly with the deposit and there does not immediately appear to be an ongoing obligation in those sections. However, it is clear from this decision that the penalties under s215 would bite and a landlord would not in that case be able to serve a notification under s21.
For those (relatively) few landlords breathing a sigh of relief because they see themselves as not being captured by Superstrike this will be a worrying decision. They will not be caught by the financial penalties but they will now have to return the deposit or protect it in order to avoid being unable to recover possession of their properties using the powers provided by s21, Housing Act 1988.
As a final aside this decision also means that the decision in R(Tummond) v Reading County Court must be incorrect.
Appeal allowed, possession on notification under s21 set aside as the notification is invalidly served.