September 15, 2014
Property gossip August 2016

Deposit Rules to Change

Following the Superstrike versus Rodriguescase in June 2013, the Government said they would amend the legislation to negate the affect of Superstrike (a decision they had not anticipated). Following private amendment suggestions for the Deregulation Bill, the Government have now tabled proposed amendments to deal with Superstrike.

The essence of Superstrike was that the deposit was taken before deposit protections started in April 2007 and the fixed term ended after April 2007, when deposit protection was in force. A statutory periodic tenancy then arose by virtue of section 5 of the Housing Act 1988.

The two questions for the court were a) was the statutory periodic tenancy a new tenancy or the same one continuing and if it was a new tenancy b) should the landlord have done anything with the deposit (as no money physically changed hands).

Their decision was that the statutory periodic tenancy was a completely new agreement (like having signed a renewal) and that this amounted to a “virtual receipt” of the money. Therefore, compliancy with the deposit protection rules in section 213 of the Housing Act 2004 was required.

This decision was something of a surprise to the market, even if there would not be many identical cases with the fixed term tenancy spanning the introduction of the legislation. Much more of an issue was the logical conclusion that if the Superstrike statutory period tenancy amounted to a new receipt and triggered full deposit protection rules, the same would apply to any statutory periodic tenancy. Although the facts would be different, the case also raised the question of what was required in respect of deposit protection if a new fixed term, or periodic tenancy, was signed up.

The government promised they would change the law to deal with the Superstrike judgement, though few would have foreseen the current amendments proposed. The currently proposed amendments will make it a legal requirement to protect all “Superstrike” deposits (collected before April 2007 and statutory periodic after April 2007 with the same statutory periodic tenancy still running. Therefore they have not “removed” the Superstrike judgement, they have written it into law! The only saving grace is that they propose 90 days in which to comply.

It was too tempting, while amending, not to make other changes and they have tried to address the statutory periodic that arose after April 2007. The new rule here is that if deposit was done entirely correctly on the original fixed term then it will be considered to have been completed, without any physical actions, on the arising of a statutory periodic tenancy. However, note, only if the original protection and prescribed information was correct.

The third situation they have addressed is the correct procedure to undertake on any fixed term or periodic renewal of a deposit that is already protected. In this situation, provided the prescribed information was correctly given on initial receipt of the deposit then no futher prescribed information will be required.

It must be understood in that last situation that the “initial requirements” of the chosen deposit scheme must still be complied with again on granting a new tenancy.

While these rules certainly reduce some of the risks of deposit protection legislation, there are still traps for the unwary. In the first situation (a Superstrike deposit), it will rely on people who have been holding a deposit for at least seven years to know within 90 days of the introduction of the legislation that they need to potentially do something.

In the post April 2007 statutory periodic tenancies it will make the initial prescribed information provision even more important. It will mean legal advisors for tenants will not look at the current prescribed information for flaws, but the original set.

In the post April 2007 renewals the important points will be to make sure the original prescribed information is correct, but also to make sure that the “initial requirements” of the chosen deposit scheme are understood and complied with on the initial receipt and the renewal.

These changes may improve the lot of the landlord but it is certainly not the ‘get out of jail free’ card that it was portrayed would be provided for them.

This newsletter is produced and distributed on a limited basis. Whilst the information researched and provided is believed to be correct, neither the sender nor anyone involved in the production of it, accepts responsibility for its accuracy.   © TFP


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