Rather than seeing Assured Shorthold Tenancies (ASTs) as something easily managed, landlords and developers may now think them to be a hindrance to obtaining vacant possession and utilising land, following recent caselaw and proposed legislative changes.
This is the first of three articles discussing changes in the law applying to the termination of ASTs.
Prior to 6 April 2007, gaining possession by serving a section 21 notice to terminate an AST was a straightforward process for landlords. Come expiry of the fixed term, a landlord simply needed to serve a s.21 notice, giving at least 2 months' notice before possession was required, and then issue court proceedings if the tenant failed to vacate. If the notice had been served in the correct form, the court had no choice but to order possession.
Since 6 April 2007 the process has become increasingly complex and tricky to navigate. Since that date, where the tenant pays a deposit to the landlord on commencement of a new AST, it has been compulsory for a landlord to join a Tenancy Deposit Scheme (TDS) and supply the tenant with certain prescribed information about the TDS, both within set timeframes.
If the landlord does not comply with these rules, he may be prevented from serving a s.21 notice to recover possession from the tenant. The tenant can also apply to court for an order that the landlord return the deposit and pay a financial penalty to the tenant of up to 3 times the deposit amount, even if the landlord belatedly complies with the rules.
This is the case even where the landlord seeking possession is not the same landlord who granted the AST and failed to comply in the first place. In addition, if a landlord goes to court to obtain possession only to find his initial s.21 notice was invalid, he could have wasted several months and significant cost only to have to start all over again. This is a particular problem for individual landlords with small portfolios who may not have regular access to legal advice.
These problems have been compounded thanks to the two recent cases of Superstrike Ltd v Rodrigues 2013 and Charalambous v NG 2014.
Superstrike Ltd v Rodrigues 2013
Once a fixed term AST ends, a periodic tenancy will arise under statute on the same terms as the original tenancy. A non-professional landlord might assume that the whole thing would be viewed as just one tenancy but this is very much not the case.
This case concerned a fixed term AST which was granted before the introduction of the TDS rules. Once the fixed term ended, a periodic tenancy arose. The Court of Appeal held that the periodic tenancy was a new tenancy and as such, the landlord should have registered the deposit paid by the tenant with a TDS on commencement of that new tenancy, despite the fact that the deposit was originally paid before the TDS rules came into force.
Charalambous v NG 2014
Again a rent deposit was paid by the tenant before the TDS rules came into force. The landlord was therefore under no obligation to register it with a TDS at the time. The tenancy became periodic in 2005. The Court of Appeal held that, despite the fact that the TDS rules were not in place either when the AST was granted or when it became periodic, the landlord could only serve a s.21 notice seeking possession of the property if he had either returned the deposit to the tenant, or protected it with a TDS prior to serving the notice.
The effect of these cases was to make the TDS rules retrospective, something which seems unnecessarily harsh. This is particularly so for those individual landlords mentioned earlier who are perhaps unlikely to see the sense in a change the law now being made to apply to tenancies potentially granted years ago.
As a result, all residential landlords need to review their property portfolios to determine:
- When any ASTs were granted i.e. before or after 6 April 2007
- Whether a deposit was paid
- Whether the deposit was protected in the correct way and the tenant given the right information and
- Whether, for any fixed term ASTs that have expired, any new periodic statutory tenancies have arisen and whether any action now needs to be taken to protect any deposit given or return it to the tenant.
Any potential purchases or developers looking to buy land subject to ASTs should also ask these questions and ensure that any necessary action is taken by the seller prior to completion of the sale.