Nearly Legal: Housing Law News and Comment

Surrender to the churn – deposits and shared houses.

Sturgiss & Anor v Boddy & Ors (2021) EW Misc 10 (CC)

It is, as HHJ Luba QC notes in this appeal judgment, far from an uncommon scenario. A group of people, say four of them for neatness, take a joint tenancy of a house or flat. (Neatness because the maximum number of joint tenants is capped at four by s.34(2) Law of Property Act 1925.) They jointly pay a deposit, and each select their room. Each pays a ‘share’ of the rent to the one of them who pays the full rent over to the landlord. Then, sooner or later, one of the tenants wants to leave. They find a replacement, who duly moves in and pays the departing tenant their ‘share’ of the deposit. There may well be some swapping of rooms involved. This happens a number of times, perhaps many times, until none of the original joint tenants remain in occupation and, as HHJ Luba QC puts it, in a moment of waxing lyrical:

The only record of A, B, C or D ever having lived at the property may be the appearance of their names on increasingly dog-eared post in an ever-growing pile in the communal hallway or in a faded copy of their original tenancy agreement held somewhere in the files of the property owner or their agent.

The landlord will know of this churn of tenants. They get the rent and don’t have to go through the hassle of finding new tenants themselves. And so, ad hoc, on it runs. Until it doesn’t. Such was the case here, where an original joint tenancy of a three bedroom house was in 2004. Over the subsequent decades, many tenants had come and gone, the rent had risen, and the original deposit, taken in 2004 (before the Housing Act 2004 provisions came into force in 2007) was unprotected. Departing tenants received their ‘share’ of the deposit from incoming tenants. And then two departing tenants made a claim for a penalty for breach of deposit protection in respect of their ‘shares’, £800 and £1050.

The other three joint tenants from the relevant period were added as parties, as required for a claim by any one or two joint tenants, but played no part in the case

At first instance trial, the Deputy District Judge accepted the landlord’s argument that

a) there was no surrender and regrant of tenancy with each new occupier, as the landlord was not actively consulted about the matter and did not have the opportunity to negotiate new terms

b) anyway, these were not tenants but mere licensees, apparently on the basis of lack of exclusive occupation, and lack of a definable term or notice period; and

c) the deposits had not been paid to the landlord

The claim was dismissed with costs to the landlord of about £6000.

The tenants appealed, arguing all three of these conclusions were incorrect.

HHJ Luba QC held:

Tenancy/licence. On the Street v Mountford characterisation of a tenancy, i) there was rent, ii) there was no evidence that exclusive occupation was not enjoyed by the tenants. There was no suggestion that the landlord could turn up and require the tenants to let him enter and live there. iii) The rent was monthly, so there was a strong reason to believe that there was a monthly term. While the DDJ was influenced by the apparent lack of notice given by tenants, this was when a replacement had been arranged. One of the claimants had not found a replacement and accepted in her communciation to the landlord that a month’s notice (and rent) was required.

So there was exclusive occupation, for a term, for a rent. These were tenancies.

Surrender and regrant.  The DDJ had relied heavily on the landlord not participating in the arrival of a new tenant in his judgment. However:

As to the extent to which a landlord needs to know – in advance – that joint tenant X is being replaced by joint tenant Y, Mr Jacob relied on Tower Hamlets v Ayinde [1994] 26 HLR 631. There, on markedly different facts, the Court of Appeal found that having been told that an outgoing tenant had departed and had installed a replacement, a landlord was thereafter fixed, by its conduct, with the new incumbent by surrender and re-grant. The short point is that the landlord’s acceptance of the new set up amounted to a completion of the process of surrender and re-grant even in circumstances where it had not known of the switch of occupiers when or before it took place.

Here, there was in place, as the landlord’s own evidence sets out, a prior arrangement that at the departure of one or more individuals the property would be treated as, in effect, re-let to those remaining and the new arrival(s). The arrangement did not require the landlord to participate in any way at the time or to be informed each time (although the Judge found he was). Given that this was a structure of the landlord’s own making he can hardly be heard to complain if the law gives effect to what has been agreed through the medium of surrender and re-grant.

As explained in QFS (Sable v QFS Scaffolding Ltd (2010) L&TR 30), the authorities on surrender are infused by the concept of estoppel i.e. the landlord who has acted consistently with the termination of a tenancy and the acceptance of a new tenancy cannot later resile. In the current context, it would be absurd to think that the landlord could insist that an individual who was a joint tenant before a ‘churn’, and had left after it, was still a tenant even though he was accepting rent he knew (or can be taken to have known) was being tendered on behalf of a new group.

There was a surrender and regrant of tenancy on the occasion of each ‘churn’

Taking of deposit. It was indeed the case that no funds had been paid directly to the landlord for a deposit since the original tenancy in 2004. However, Superstrike Ltd v Rodrigues (2013) 1 WLR 3848 (our note) was relevant, in particular the Court of Appeal’s view that on a transitional from a fixed term to a statutory periodic tenancy, the landlord took the deposit anew by way of set off:

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,

Here, there had been some agreed deductions from the deposit over the years, but the landlord still held the money against the tenants’ performance of their obligations.

It seems to me that where the landlord has entered into a construct by which, at his own design, there is a single initial payment of a deposit and thereafter a churning in the identities of tenants, he must be treated as having been ‘paid’, by each new cohort, the amount held in respect of the original cohort and each subsequent cohort. The alternative is the very artificial notion that Mr Boddy is fixed with an indefinite liability to account to his original (and long gone) 2004 tenants for such sum as is left after proper deduction in respect of acts for which they are not responsible and have assumed no responsibility.

So, there as a new tenancy on each ‘churn’ and the deposit was received by the landlord in respect of each new tenancy. The deposit was not protected on these occasions, therefore the penalty arose.

On the exercise of discretion as to the amount of the penalty:

The landlord contended that the penalty should only be on the amount paid by the claimants specifically as their ‘share’ of the deposit.

I do not consider the liability severable in that way. £1,205 is the deposit to be treated as paid and received for the tenancy of the whole flat by the tenants at each of the three churns with which I am concerned. And it is to that sum that the multiplier falls to be applied. If that is more than equity would suggest should be recovered by these two claimants alone, it has always been open to the other co-tenants to join in the claim. They have elected not to do so.

However, on the multiplier (between one and three times the deposit):

It seems to me that, although I have had regard to all the facts of the case and all the submissions of the parties, the following factors are particularly attracting of weight in this exercise:

(1) The deposit was first taken at a time when deposits did not require protection;

(2) The deposit has been retained and is still available and can now be protected;

(3) The landlord has not subsequently protected it because he believed that the informal nature of the transitions for occupancy of the flat did not require him to do so;

(4) In that view he was supported by his legal advisers and by at least one judge;

(5) Those informal arrangements contained a method of ensuring each outgoing tenant received reimbursement of their ‘share’ of the deposit from their arriving replacement; and

(6) The tenor of Mr Boddy’s evidence, and the undertaking of his counsel to the effect that – if the matter is ruled against him – he will promptly take the steps necessary to protect the deposit which he has held and retained over 15 years.

These features, and the other circumstances of this case, in my judgment put this right at the bottom end of landlord ‘culpability’ for breach of obligations.

A penalty of one times the deposit, £1,205, ordered for each of the three relevant ‘churns’ – surrenders and regrants – for a total of £3615.


This is surely correct, certainly on the tenancy and Superstrike receipt of deposit points.

On the surrender and regrant point, this is a very attractive and practical approach, and clearly supportable where the landlord has acquiesced in the occupation of the ‘replacement’ tenant without more. And, while this decision will certainly put a number of landlords at risk of deposit penalty claims, it is also a decision that should, in some respects be welcomed by landlords as well.

For example, consider what the position would have been if the landlord wanted to seek possession. Now, even if the surrender and regrant point was wrong (which I don’t think it is), the landlord’s argument that the occupants were simply licensees was also wrong.

The first few ‘replacement’ occupiers would arguably have been licensees (as lodgers) of the original joint tenants (including the departed ones). Once the last of the original joint tenants had left, the occupiers would be the sub-tenants of the original joint tenants, who would retain the tenancy, but not as an assured shorthold tenancy as not occupying as only or principal home.

This would play out again with each further churn of replacements, so that at any one time, the occupiers might be sub-tenants, or sub-sub-tenants, or licensee lodgers of the sub-tenants or sub-sub tenants, and so on, potentially ad infinitum.

However, the only way the landlord could legitimately gain possession would be to serve notice to quit on the original joint tenants. Who in this case had left the property some 15 years ago or more, could well be abroad and in any event would be very difficult to find…

On the basis of the surrender and regrant, the current occupiers are the direct tenants of the landlord, making things straightforward (at least once all the formalities and breaches of the requirement of post 2007 and 2015 assured shorthold tenancies have been sorted out.



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