The Statutory Deposit Scheme was introduced by the Housing Act 2004 and implemented with effect from 6 April 2007. In the recent decision of Charalambous and Karali v Ng and Ng [2014] EWCA Civ 1604, the Court of Appeal considered whether a landlord is subject to the sanctions and penalties for non-compliance with the Scheme, even where the deposit was paid before the scheme came into effect.

In Charalambous, the tenants entered into an assured shorthold tenancy for a period of 1 year minus 1 day, commencing on 20 August 2002. The tenants paid a deposit of £1,560 to the Landlords prior to the commencement of the tenancy. The tenancy was renewed for the same term over the subsequent years. No further deposit was paid, but the original deposit of £1,560 was carried forward and applied in respect of the new tenancies. After 17 August 2005 no further renewal tenancy was agreed and a statutory periodic tenancy consequently arose between the parties. In October 2012, the landlord served a section 21 notice under the Housing Act 1988 (“the Act”) requiring possession of the property on 17 December 2012.

The tenants challenged the validity of this notice on the basis of non-compliance with the deposit scheme provisions of the Act. At first instance, the Court held that the notice was valid. The tenants appealed to the Court of Appeal, who determined that the section 21 notice was invalid.

Under the Act, a landlord has 30 days to register a deposit and provide the tenant with the prescribed information. If the landlord fails to do so, it cannot serve a section 21 notice on the tenant. The landlord can rectify its failure to provide the prescribed information to the tenant, but it is not possible to rectify a failure to register the deposit. Where the landlord has failed to protect the deposit by placing it into one of the authorised schemes, a section 21 notice cannot be validly issued until the deposit is returned to the tenant in full, or with agreed reductions. This is highly significant because the section 21 notice is the sole means of instigating the Accelerated Possession Procedure. This is the only scheme which enables the landlord to recover possession of a property where the tenant is not in breach, unless the tenant agrees to voluntarily surrender the tenancy.

The Court of Appeal in Charalambous determined that the above provisions of the Act relate to all deposits, even if they were received before 6 April 2007.

Moving forward, all landlords are advised to ensure that all deposits, including those received before 2007, are protected in an authorised scheme, for example; the Deposit Protection Service, Mydeposit or Tenancy Deposit Scheme.

For further information regarding this topic, please contact the Edwin Coe Property Litigation team.

Joanna Osborne – Edwin Coe – joanna.osborne@edwincoe.com
Shams Rahman – Edwin Coe – shams.rahman@edwincoe.com
Lucy Hollis – Edwin Coe – lucy.hollis@edwincoe.com
Aisha Khan – Edwin Coe – aisha.khan@edwincoe.com

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