Further Tenancy Deposit Complications

In the case of Charalambous and another v NG and another the Court was asked to rule on the necessity of protecting the tenancy deposit in an assured shorthold tenancy.  In 2002, the tenants took a 1 year tenancy of a property in central London. In accordance with the terms of the tenancy, they paid a deposit of £1,560. The tenancy was renewed twice more and, under each agreement, the same deposit was required to be paid, although no further funds were exchanged. The deposit was never held under a statutory tenancy deposit scheme. In 2005, when the last written tenancy ended, a statutory periodic tenancy arose in its place (under the Housing Act 1988).  In 2007 the regulation of tenancy deposits was introduced by ss 212 to 215 of the Housing Act 2004 (further amended s184 of the Localism Act 2011). In October 2012, the landlady served a section 21 notice on the tenant, requiring possession of the property. The district judge held that the notice was valid. The tenants appealed.

The landlady submitted that she could not (and need not) have complied with the 2004 Act (which came into force in 2007), requiring her to place the deposit in a deposit protection scheme, because she had received the deposit long before any duty to comply with the Act had come into existence. Even if the deposit was treated as having been notionally paid again when the statutory periodic tenancy had come into being, that notional payment in 2005 would also have long pre-dated the coming into force of the legislation in 2007. Before the 2004 Act had come into force, she had had a vested right to keep the deposit, and the right to serve a s 21 notice whether or not the deposit was being held in accordance with an authorised scheme. She argued that the presumption against retrospective legislation arose when legislation removed or impaired a vested right and was, thus, engaged in her case.

The appeal would be allowed and judgement given in favour of the tenants.

The Court of Appeal ruled that, in so far as the 2004 Act precluded the service of a s 21 notice when the deposit was unprotected, it was prospective in operation rather than retrospective. It was only therefore concerned with s 21 notices served after it came into force. Had it invalidated s 21 notices served before it came into force, it would have been retrospective in its operation, but, it did not. If there was any lack of clarity in the 2004 Act itself, the terms of article 16 of the Order plainly envisaged that, as from the coming into force of the amendments made by the 2011 Act, the code applied to existing tenancies. The concern was not with the date at which the deposit had been received, but with the date on which the tenancy was in effect. Further, while it might have been said that the 2004 Act was potentially retrospective, art 16(2) of the Order confronted head on the problem about timely compliance by actually giving the landlord a prospective ‘window of grace’ in which to comply with the law. The landlord had not taken advantage of this window.

Therefore the s21 Notice served was invalid.

Oliver Kew

Published on 16/01/2015