Landlords must register or return deposit before serving notice requiring possession

The Court of Appeal has made a further decision which means that even if a tenant’s deposit was received before 7^th April 2007, the Landlord must comply with the tenant deposit scheme registration requirements or return the deposit to the tenant before serving a notice requiring possession under section 21 Housing Act 1988 in order for that notice to be effective. .

In Charalambous v Ng it was decided by the Court of Appeal in December 2014 that a section 21 notice served by Ms Ng , the Landlord, was not effective even though the deposit was paid before the deposit protection legislation came into effect on what was and remained a statutory periodic tenancy. No additional deposit had been paid after April 2007. The Landlord argued that as the deposit was received before April 2007 the protection legislation could not arise and penalties for non-compliance could not be made against the Landlord.

The Court of Appeal found that because the deposit was taken before the introduction of the legislation it did not fall within section 213 of the Housing Act 2004 and agreed no financial penalty could be given. However the first requirement of section 215 (1) regarding s21 Notices states that “a tenancy deposit has been paid in connection with a shorthold tenancy” which, the Court decided meant that it refers to a past payment but does not limit the past only to deposit paid after 6 April 2007. The second requirement of section 215 is that the deposit is not being held in accordance with an authorised scheme (or section 213(3) has not been complied with). The effect is any deposits paid in connection with a short hold tenancy which is not being held in accordance with the statutory requirements in place at the time the section 21 notice requiring possession is served (not when the deposit is received) will make the section 21 notice ineffective. The Court therefore found that Mrs Ng’s s21 Notice was not effective because the deposit had not been registered or returned at the time it was served , even though she did not face financial penalties under the legislation for non-compliance.

The conclusion of this decision is that whenever a deposit was taken even if it is before the deposit protection requirements came into force, the deposit must be protected or the deposit returned to the tenant before a section 21 notice is served. It is therefore essential that the existence and status of a deposit (including one that may have been paid historically by the tenant whilst in the property) is properly recognised and it is registered or returned (this includes where the Landlord may have changed during the life of the tenancy or succession of tenancies) before a section 21 notice is served. If not, although the Landlord may not in these particular ( and increasingly rare) circumstances face a financial penalty, the Landlord’s possession proceedings will be dismissed or defeated and with time wasted and potentially a substantial costs claim made against the Landlord, if the tenant has instructed lawyers.

The current Deregulation Bill is seeking to amend the provisions of the deposit protection regime so deposits do not have to be reregistered when a new tenancy or statutory periodic tenancy arises between the same landlord and tenant and property. It currently does not cover the above position , although the Government are still able to make changes to accommodate this scenario.

If you have any queries concerning the matters raised please contact Jeremy Teall,Partner and Housing Management Team Leader on 020 8567 3477 or e-mail jteall@prince-evans.co.uk