Failure to comply with statutory tenancy deposit requirements will prevent repossession of residential premises.
Charalambous v Ng [16 December 2014] is a particularly important decision for landlords and tenants where a deposit is held for tenant breaches of assured shorthold tenancies (including statutory periodic ones) of residential property.
Charalambous took a tenancy of residential property back in 2002 and paid a deposit of £1,560. The tenancy expired and was renewed a couple of times with the original deposit being carried over and credited against the renewed tenancy. When the last tenancy ended in 2005, a statutory periodic tenancy arose.
In 2012, the landlord, Ng, served a notice under section 21 of the Housing Act 1988 requiring the tenant to give up possession. By then, statutory regulation of tenancy deposits had been introduced with effect from 6 April 2007, which was designed to put an end to residential tenants’ complaints that their deposits had been unreasonably withheld by the landlord at the end of the tenancy.
However, the tenant’s deposit in this case had never been held under a statutory, authorised scheme. The county court decided that the landlord’s “section 21 notice” was valid. However, the Court of Appeal decided in the tenant’s favour and the landlord was unable to regain possession based on that invalid notice.
The legislation (the Housing Act 2004) requires a landlord who receives a deposit in connection with an assured shorthold tenancy to comply with the initial requirements of a statutory deposit scheme within 30 days of receiving the deposit. If they are not complied with, no section 21 notice can be given to the tenant if the deposit is not being held in accordance with a scheme. However, such a notice can be given if the deposit has been returned to the tenant in full or with agreed deductions.
The landlord was not required to comply with the legislation at the time when she received the deposit or when the statutory periodic tenancy arose, since on each occasion the legislation had yet to come into force. However, despite this, the legislation targeted cases where the deposit was not being held in accordance with a scheme, even though at the time of receiving the deposit or the relevant tenancy arising, the landlord had no obligation to deal with the deposit in a particular way. It is that which provides real protection to tenants.
The legislation’s purpose is to protect tenants’ deposits and to impose sanctions on landlords who failed to protect them. In case landlords consider that the legislation is too one-sided, landlords are protected by the legislation, because they can pay the deposit into an authorised custodial scheme, or repay the deposit to the tenant, if they want to serve the section 21 notice.
The predicament in which the landlord found herself in this case arose from her failure to take advantage of a grace period offered by the legislation to comply with the statutory requirements.
Since the deposit had never been held in accordance with a scheme, the section 21 notice given in order to regain possession was invalid.
If a landlord’s key goal is to regain possession and it has not complied with the legislation, it may need to repay the deposit to the tenant in order to do so (something the landlord in this case appeared not to have done).