Tenancy deposit schemes – a pain in the AST?

Imposed by section 213(1) of the Housing Act 2004 (HA 2004), it has been mandatory (since 6 April 2007) for a landlord to join a tenancy deposit scheme (TDS) on creation of a new residential assured shorthold tenancy (AST), where a deposit is paid by the tenant to the landlord on commencement of the tenancy.

By virtue of section 21 of the Housing Act 1988 (HA 1988), the landlord of an AST has the right to apply for possession of the premises once any fixed term has expired without giving any reason, subject only to giving not less than two months’ notice.

However, if a deposit has been paid, the landlord cannot serve notice under section 21 of the HA 1988 if that deposit should have been held in accordance with an authorised TDS.

This was recently considered by the Court of Appeal in Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 where the tenant had taken an AST of a flat for a fixed term of one year less one day. A deposit of one month’s rent was paid to the landlord at commencement of the tenancy.

At the expiry of the fixed term, by virtue of section 5 of the HA 1988, the tenant became entitled to a statutory tenancy on the same terms.

The landlord subsequently (in 2011) served a notice under section 21 of the HA 1988 requiring possession. The Court of Appeal had to decide whether it was entitled to serve that notice, as the deposit had not been placed in a TDS. The landlord’s contention was that the deposit had been paid by the tenant prior to the relevant provisions of the HA 2004 coming into effect. The Court of Appeal didn’t agree: It held that the statutory tenancy is a new tenancy. The legislation therefore requires that the tenant’s deposit is held in accordance with a TDS at the point when the statutory tenancy arises (provided that happens after 6 April 2007). Since the deposit was not held in accordance with a TDS, the landlord was not entitled to serve a notice under section 21 and was therefore not entitled to possession.

Although most practitioners might have expected this decision, it serves as a reminder that once the fixed term tenancy expires, and the tenant remains in possession, the landlord must be advised to make arrangements for the deposit to be held in accordance with a TDS if he wants to preserve the right to serve a section 21 notice.

If you would like any further information about this issue, please contact me by emailing simon.burlinson@edwincoe.com

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