Martyna Switaj v Adrian McClenaghan (2024) EWCA Civ 1457

The Court of Appeal on the status of a fee related to a tenancy taken before the Tenant Fees Act 2019 came into force on 1 June 2019 and the impact on the validity of a section 21 notice.

Ms Switaj had an assured shorthold tenancy starting on 12 April 2018 for 12 months. The Agreement required payment of a) a deposit of £1615, rent of £1400 per month, and “the sum of £120.00 Plus VAT for the preparation of any documents in relation to all renewals or extensions of this Tenancy.” There was also provision for a check out fee for an inventory and condition check.

Ms S paid the deposit, rent, the £120 administration fee (though I will confess it is not clear to me why that was paid at the start of the first tenancy), and apparently the checkout fee.

At the end of the fixed term, it appears a statutory periodic tenancy arose – there was discussion of a new agreement, but none was in evidence – however MS S paid another £120 administration fee. There were new agreements in 2020 and 2021, the latter for a term then contractual periodic. Neither of these agreements provided for a ‘renewal’ administration fee or check out fee.

Mr M served a section 21 notice on 22 June 2023. Ms S defended on the basis that the 2018 payments meant the section 21 was invalid. The defence was dismissed at first instance and ended up in the Court of Appeal.

The issue was the status of the pre 1 June 2019 payments made by Ms S. It was common ground that the administration fee and the check out fee would have fallen foul of the Tenant Fees Act 2019 as prohibited payments if demanded after 1 June 2019.

Ms S argued that, by analogy with Superstrike Ltd v Rodrigues (2013) EWCA Civ 669 on the requirement to pay a deposit extending to a new statutory periodic tenancy, the terms of the original tenancy carried over into subsequent tenancies.

At first instance, the District Judge had held that the subsequent tenancy agreements in 2020 and 2021 did not require payment of those fees. The Court of Appeal notes that a payment can be ‘required’ under the terms of the TFA even if not in the agreement, but ‘requiring’ a payment must be overt and active. Mere silence could not about to a requirement. So the District Judge was correct to distinguish Superstrike.

Ms S then argued that the checkout fee paid in 2018, which had not subsequently been returned, was still held by the landlord. There had been no checkout at the end of the 2018 tenancy (or subsequently). Ms S had not requested the return of the checkout fee, and there as nothing that could be taken as consideration for that fee. Therefore, the fee must have been notionally paid again for the 2019 tenancy. When the current tenancy was granted, there was no basis for a check out fee, which should have been repaid to Ms S. Retaining those funds could be considered as a payment pursuant to a requirement.

Although it is necessary for the payment to be required “in consideration of” the grant of a tenancy, that does not necessarily refer to a bargain between the parties that the payment is given in exchange for the tenancy. The statutory phrase “in consideration of” is merely to identify the kind of connection between the grant and the payment which makes the payment prohibited.

The Court of Appeal did not accept this. The Court was not prepared to accept that Mr M had ‘required’ that payment in relation to the 2020 or 2021 tenancies where those agreements were carefully TFA compatible, The District Judge had not been asked to make these inferences at first instance, and Mr M had not been asked to rebut them.

In my judgment the starting point for the analysis is that the money described as the check-out fee was paid by Ms Switaj as part of the consideration for the grant of the original AST. It was debited to her account before that tenancy came to an end. There is nothing in the terms of the original AST to support an inference that it was a conditional payment. It was simply part of the overall consideration for the original grant. It was required and paid long before the TFA came into force.

Mr Westgate argued that because there was no check-out at the end of the original AST, Ms Switaj would have been entitled to require Mr McClenaghan to repay her the check-out fee. Likewise at the end of the 2019 tenancy she would have been entitled to require repayment of the check-out fee. I will assume that to be so. But that does not in my judgment mean that retention of the monies amounted to a requirement in consideration of the grant of the current AST, particularly where, as is the case here, Ms Switaj did not ask Mr McClenaghan to repay them. The check-out fee was paid in consideration of the grant of the original AST. The retention of the monies was entirely independent of the grant of the current tenancy. Nor do I consider that the passive retention of the monies could amount to a requirement. In addition, if Ms Switaj had a claim in unjust enrichment or in debt at the end of the original AST or the 2019 tenancy, she still has it. It seems highly unlikely that she compromised her claim by making an unlawful payment.

Moreover, the wording of section 1(6) TFA was phrased in contractual terms or in the contractual context. It followed that “in the context of the grant of a tenancy it has its usual meaning in the law of contract, namely a payment made in exchange for the grant”. In this case, that was for the original 2018 tenancy.

Section 17 (1) also set out a sequential order. A payment must be required, and then paid as a result of the requirement. So express requirement of some sort was necessary.

Appeal dismissed.