It’s not uncommon these days for a group of people to flat-share (or house-share), and for convenience all round, they take on a joint tenancy.

The maximum number of joint tenants in a residential tenancy is capped at four by s.34(2) of the Law of Property Act 1925. The usual arrangement is they jointly pay a deposit, and each tenant selects their own room.

Where more than four people share a single tenancy, the first four tenants become trustees who hold the legal estate “on trust” for the remainder who are known as the beneficiaries. These beneficial tenants don’t hold a legal interest in the estate but are none-the-less protected by the Housing Act 1988. Usually the beneficiaries are not jointly and severally liable under the tenancy agreement, as are the main tenants, and they cannot therefore independently end a periodic joint tenancy by serving notice, as is the case with joint tenants.

Each tenant usually pays a share of the rent and utility bills to one of them who acts as the lead tenant and who pays the full rent over to the landlord. Sooner or later, one of the tenants will want leave and they will be obliged to find a replacement, who duly moves in and pays the departing tenant their share of the deposit.

In this loose arrangement there may at this point be some room swoops, if one or more occupiers change. This process can happen many times over an extended period, until at some point in the tenancy none of the original joint tenants remain in occupation.

The original tenants’ names will still appear on perhaps by now a faded copy of the original tenancy agreement held by the property owner or their agent.

The informality of these arrangements often suits the owner, who receives regular rent payments and need never be troubled with having to re-let rooms, and conversely it suits tenants because they can choose their new occupants, and they can leave at will, subject to finding a replacement who is acceptable to their fellow occupiers.

The legal case

Something very similar to this arose in the case of Sturgiss & Anor v Boddy & Ors (2021) but the difficulty in this case revolved around the payment of and protection of the deposits for a tenancy which started in 2004.

The owner (a landlord who lived aboard with no agent acting) was happy that the individuals agreed amongst themselves which rooms in the flat they each occupied and what arrangements they made as to the apportionment between themselves of contributions towards the rent and/or household bills. They had to share the use of the kitchen and other communal areas, but each had their own bedroom.

As the newcomers arrived they would be informally vetted by the other remaining residents to ensure that they would be compatible, a suitable ‘fit’ in the property. It is often the case that rooms are changed around at this point so the incumbents may improve their circumstances.

Over the months and years the occupiers left and were replaced by new occupiers until several years later none of the original tenants were left in occupation.

The original deposits from each original occupier were paid over to the landlord. He did not protect the total deposit because as of June 2004 (when the tenancy started) there was no legal obligation to protect. As each occupier left in turn, the incoming occupiers replacing them reimbursed them for their ‘personal share’ of that original deposit.

The original deposit totalled £1,754 but there had been some breakages for which the landlord had made some deductions, the remaining balance now stood at £1,205. The original monthly rent of £349 per person, of which there were four, had been increased along the way to a total of £2,295 per month

All went well until after several years, two of the more recent occupiers decided there may be some mileage in taking the landlord to court for his failure to protect the original deposit, and those of the subsequent replacements. There were several of these and therefore a claim for potentially multiple penalties arose.

This type of arrangement of shared housing presents many difficulties. If disputes arise in an informal arrangement such as this, it can throw up difficult legal questions, the main one being, what is the legal relationship between the landlord and the present occupiers, and what happens if the landlord wants possession? It also presents problems as to the status of the deposits and how the landlord needs to deal with the protection of the deposits. The judgement here in Sturgiss & Anor v Boddy & Ors [2021] helps on the face of it to settle some of these questions.

The claim

In Sturgiss & Anor v Boddy & Ors [2021] the dispute arose as a claim by the two relatively recent flat-sharers, claiming an order penalising the flat-owner for failing to protect their deposits at the point of the particular changes which brought them each into the flat.

Their case was that, at each change there was a surrender of the tenancy held by all the occupiers of the flat at a time before the change occurred, and the grant of a new assured shorthold tenancy to the new combination of occupiers in the flat after the change. They claimed that the law requires that the landlord protects the tenancy deposit afresh at each change point, and that he did not do so.

The court hearing

These claims were defended and the owner contended that the claimants and the current occupiers were mere licensees, not tenants. They did not hold assured shorthold tenancies the landlord argued, so the landlord was under no obligation to protect the new occupier’s deposits on their arrival. In any event, he argued, neither of the claimants had actually paid to himself the landlord any deposit, so there was no deposit to protect.

The judge (DDJ Brafield) in this first County Court hearing gave judgment and dismissed the claim. It was held that the claimants were indeed licensees and not tenants. The changes the judge said were not grants of new tenancies. Even if that was wrong, the judge said, the claimants did not have a right to sue for the deposit penalties for non-protection as no deposits had not been paid over to the landlord.

The appeal

The claimants appealed the first court’s judgement. An Appeal Court hearing was held during Covid restrictions where the claimants attended by telephone and the defendant who was living abroad had attended via a video link.

HHJ Luba QC presiding allowed the appeal. The judge concluded that the situation the tenants found themselves in “bore all the hallmarks of a tenancy”, not as had been argued, a licence. There was exclusive occupation, for a specific term (monthly), at a rent. All the characteristics of a tenancy existed the judge argued as per the famous tenancy v licence test case Street v Mountford.

Rent was required and accepted from the occupiers at any one time – described as rent by all parties, paid monthly on behalf of all the occupiers. There was no evidence of a fixed-term tenancy so as rent was paid monthly, this was the term. The judge decided that the occupiers clearly enjoyed exclusive possession of the flat as the landlord did not reside there and they would have no legal obligation to admit him if he turned up. It was irrelevant that the landlord did not know the identities of the occupiers at any one time as the arrangement had anticipated this, and neither was it required that notice be given under the arrangement. As Miss Sturgiss failed to find a replacement she was required to give the landlord notice, which she did in March 2020.

The occupiers had emailed the landlord in January 2020 asking him if they occupied still under an AST. This the landlord had confirmed was the case.

Surrender and regrant

The Court of Appeal judge found that having been told and accepted that an outgoing tenant had left and a replacement installed, the landlord thereafter accepted that there was indeed a tenancy with the new incumbent. The landlord’s acceptance of the new occupier therefore amounted to a process of a surrender and re-grant, and this should be so in this type of arrangement, the judge thought, even in circumstances where the landlord had not known of the change of occupiers.

The judge referred to London Borough of Tower Hamlets v Ayinde [1994] where a landlord’s acceptance of “a new set-up”, by conduct, where a tenant left and installed another, amounted to a surrender and regrant. The landlord’s own evidence confirmed that change of occupants did not require his involvement, the Judge commenting: 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.

Taking the deposit

To win their claim the tenants needed to demonstrate that they had paid, or were accepted as having paid, a deposit to the landlord at each change of occupier.

The claimants argued that the judge in the original trial should have followed the judgement in Superstrike Ltd v Rodrigues (2013) and wrong not to accept that a deposit should be deemed to have been paid to the landlord at each change of occupier.

Judge Luba’s view was that on transition from a fixed term to a statutory periodic tenancy, the landlord took the deposit anew by way of set-off.

The new occupier should, he thought, be treated as having paid the amount of the deposit to the landlord in respect of a 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.

Judge Luba said:

…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 [the landlord] 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. The Court should adopt an application of legal principles which makes sense of the factual context and not vice versa.

So, to simplify matters a bit, there was a new tenancy on each change of tenant and the deposit was “received” by the landlord in respect of each new tenancy. The deposit was not protected on these occasions, therefore a penalty or penalties did arise.

The sum of £1,205 held by the landlord at the time of the relevant changed was to be treated as the sum being paid and received (and subject to the penalty) as the deposit for the whole flat, and not the sums paid by the individual claimants as replacements.

In respect of the multiplier (between one and three times the deposit) the judge took into account the following:

Quote:

The deposit had been retained and is still available and could now be protected

The deposit was first taken at a time when deposits did not require protection

The landlord had 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

In that view he was supported by his legal advisers and by at least one judge

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

The tenor of the landlord’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.

The judge said that “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 – was ordered for each of the three relevant changes in occupant – surrenders and regrants – for a total of £3,615.

There are some important lessons here:

This appeal decision does gives some clarity regarding the legal status of occupiers in flexible house or flat share arrangements. Though this is only a County Court appeal judgement, Judge Luba QC is highly respected is real estate matters and is likely to be followed.

In the majority of such cases the occupiers will have a tenancy. Each time a new occupier replaces another, the existing periodic tenancy would be treated as being surrendered and re-granted. It could be argued that an assignment process at each change of individual occupier would give more certainty; it would simplify the deposit protection compliance, but this would necessitate more involvement for the landlord or agent at each change.

The decision here provides an important reminder for landlords and agents that deposits must be protected when that are originally obtained from tenants. They must remain protected for as long as the flat or house share continues however long that may be.

It is irrelevant that the new occupier does not pay their deposit to the landlord. The landlord will still be treated as having received it on the basis of this decision. Each time it will need to be protected anew.

In this case the landlord was “let-off” lightly – this may not always be the case. This judgement draws a line, so landlords / agents in future should protect deposits as soon as possible to avoid what could be very large claims in this type of arrangement.

The landlord here paid £3,615 in respect of three changes of occupier and one times the multiplier. He could potentially have faced a penalty of many more thousands of pounds had they been applied to more changes over the years and by a different judge.

Landlords and agents should make sure they follow the tenancy deposit rules in a timely manner and complete the full statutory requirements including serving the required statutory information.

This article was amended 30 June 2022

3 COMMENTS

  1. So, even if the Landlord is not made aware of someone moving out and someone new moving in, he should have protected that new persons Deposit and issued a Certificate? How?

    More than any other housing mix, the Country is particularly short of single person properties – this Landlord would do well to S21 the lot and re-let as a family home.

    Hopefully, the 2 “tenants” who kicked up the fuss just for their own selfish gains will find themselves with a severe shortage of housing options going forward.

    This is not a rogue landlord situation and he has offered accommodation which served both himself and his tenants for many years.

  2. Fantastic article by Tom Entwistle. Landlords really do have it tough sometimes. One of the downsides of being a landlord is having a high taxable income. Taxation is difficult enough as it is being able to speak fluent English and being deemed UK domiciled. Imagine a non-dom with minimum English skills, it would be almost impossible right! This is where Immigration Tax Partners, comes into help make the process easier. With permission of Tom Entwistle, I’d like to leave our website link behind so that people can take a look at our website and see if it’s actually helpful. If Tom Entwistle also wants to have a look and comment on some of our blogs he’s more than welcome to! https://immigrationtaxpartners.com/

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