A Court of Appeal decision has confirmed that a tenant’s deposit needs to be protected where:
The reason for the Court’s decision is that when the initial fixed term of an AST comes to an end and the landlord does not seek possession under section 21 of the Housing Act 1988 (HA), a new periodic tenancy arises under section 5 of the HA. It is not simply a continuation of the old tenancy.
Deposits – what landlords need to know
Since 6 April 2007 it has been the case that where parties enter into an AST and the landlord takes a deposit from the tenant, the landlord must ensure that the deposit is put in a tenancy deposit scheme.
This is in order to ensure that there is a simple and clear way for the tenant to seek a return of the deposit at the end of the term. The scheme administrator also adjudicates any disputes relating to deductions from/the return of the deposit.
There are serious consequences for failing to protect a deposit or provide the tenant with the prescribed information about the deposit including:
In the recent Superstrike case, the tenant entered into his AST on 8 January 2007 (i.e. before it was mandatory to protect deposits). The initial term was for a year less one day and the tenant paid a month’s rent as a deposit.
When the fixed term ended on 7 January 2008 a statutory periodic tenancy arose by virtue of section 5 of the HA as the landlord did not at that stage serve a section 21 notice. When the landlord did then seek possession in 2011, the Court held that the landlord had been barred from serving a section 21 notice as the tenant’s deposit was not protected.
What this means in practice is that, as of 8 January 2008, when the periodic tenancy arose, the landlord was in default for not protecting the deposit. This was despite the fact that, when the deposit had been paid, it was not mandatory to protect deposits.
Landlords of property portfolios which include houses or flats let on ASTs need to check whether there are any pre-April 2007 agreements which have been allowed to continue without renewal or termination. If so, any rent deposits now need to be put in tenancy deposit schemes even though they were paid before this became mandatory.
 Superstrike Ltd v Rodrigues  EWCA Civ 669
For further information please contact:
Thekla Fellas, Partner, Fladgate LLP (firstname.lastname@example.org)
Alison Mould, Partner, Fladgate LLP (email@example.com)
Jonathan Hibberts, Partner, Fladgate LLP (firstname.lastname@example.org)