After reports emerged that thousands of landlords could face legal action for inadvertently breaking the law over tenancy deposit protection, Landlord Action’s solicitors are looking into the ruling in some detail as they say it does not make any sense at all.
It has been reported that tenants whose deposits were not re-protected when their fixed term tenancy rolled over into a statutory periodic tenancy (if they stayed on in the same property) after the tenancy deposit law became mandatory in April 2007, may have a legal case against landlords, even arguing any eviction was unlawful.
Clarifying just who may be affected, Justin Selig, Solicitor and Director at Landlord Action comments “Firstly, if you are a landlord and your tenant occupies your property under an Assured Shorthold Tenancy and you have taken a deposit from your tenant, then this applies to you. If you have not taken a deposit, then you have nothing to worry about.
“If you have taken a deposit at the beginning of the fixed term of the tenancy, and the tenant remains in the property beyond the expiry of the fixed term, then according to this case the periodic tenancy is deemed to be a “new” tenancy. According to the rules relating to deposit protection, a deposit for a new tenancy needs to be protected.
“The Court of Appeal ruling states that a deposit is deemed to be received at each renewal – so in the case they were dealing with, the switch from fixed term to periodic meant that a new deposit was deemed to have been received – and because the time it was received was after April 2007 it therefore required protection for that particular tenancy.
“I think the arguments as to whether or not this issue applies to deposits received pre or post April 2007 are irrelevant as all deposits being held today (regardless of when they have been received) must be protected by virtue of the Localism Act 2011.
“The question is, therefore – where you are holding a protected deposit – do you need to re-protect it each time there is a renewal of a tenancy? At present, I think the answer to that question is, yes – but hopefully I will be proved wrong on this.
“Therefore, anyone who is holding a deposit received at the beginning of a fixed term is required to re-protect that deposit when it moves to a periodic. There is a further problem which may hopefully highlight how this does not make sense. A periodic tenancy is deemed to be renewed at the expiry of each period. Therefore, if you follow the argument – this would mean that the deposit would need to be re-protected at the beginning of each period. Most periodic tenancies are monthly – so the deposit would need to be re-protected monthly.
“Obviously this does not make sense, nor I am sure is this the intention of the legislation. So how does a landlord protect himself?
“The first thing I would do is to obtain written clarification from the deposit protection company you are using as to their take on the ruling, and comply with their recommendations. Secondly, as a minimum and you have a fixed term tenancy about to go onto a periodic, you should at least protect your deposit again when it goes periodic. (Personally, I would actually return the deposit to the tenant – but I appreciate that this is not always practical.) Thirdly, and for belt and braces protection – where you are still holding the deposit, you may want to consider not allowing the tenancy to go onto periodic, but to re-issue the tenant with a new fixed term – and re-protecting the deposit for that fixed term.
I hope that the Landlord does decide to appeal this decision and take it to the Supreme Court as some further clarification is definitely needed.”
Landlord Action is a UK based organisation helping landlords, letting agents and other property professionals. As a champion for landlords, it has campaigned extensively and was instrumental in getting the law changed to make squatting a criminal offence.