Government concerned about court ruling on tenancy deposits

The Government says it is urgently exploring whether new legislation is needed following a controversialAppeal Courtruling which affects tenancy deposit protection (TDP).

The case of Superstrike Ltd v Marino Rodrigues involved a tenant who had taken an assured tenancy for a fixed term of one year less one day from January 8, 2007 and paid one month’s rent as a deposit. The arrangement preceded the Tenancy Deposit Scheme (TDS) which came into effect in April 2007. There was therefore no reason at that stage to protect the deposit in an approved scheme.

When the assured tenancy came to an end, the tenant remained in the property and became entitled to a statutory periodic tenancy.

Six months later, the landlord served notice for possession. The case went all the way to the Court of Appeal which ruled in favour of the tenant.

It held that after the original fixed-period tenancy ended, a new tenancy began. This meant that although no new deposit was paid, the landlord retained the original deposit and was legally bound to protect it in an approved scheme as required by the new regulations.

The landlord’s failure to do so meant it could be subject to penalties and was also prevented from obtaining a possession order.

Housing Minister Mark Prisk has written to the Residential Landlords Association saying the Government is concerned about the implications of the ruling.

He said: “There are concerns that the Court of Appeal decision means that where a deposit was taken for an assured shorthold tenancy before the introduction of TDP and continued as a statutory periodic tenancy after 6 April 2007, the landlord should have protected the deposit at the start of the statutory periodic tenancy.

“This was not the intention of the legislation and we are urgently exploring whether new legislation is required to clarify the situation.”

We shall keep clients informed of developments.

Please contact Santokh Singh if you would like more information about the issues raised in this article or any aspect of commercial property law.