Tenancy deposits re-visited - what about when the property is sold?
18th July 2019
18th July 2019
After almost four years from the changes introduced by the Deregulation Act 2015, issues with tenancy deposits continue to vex landlords, letting agents and lawyers alike.
In the case of Sebastiampillai -v- Parr decided by the Central London County Court in April 2019, the question of what should happen with the tenancy deposit when the property is sold, and therefore the landlord changes, was addressed.
The property in question had been let to Ms Parr under an assured shorthold tenancy since July 2007. Initially the tenancy was granted for a term of 12 months and a succession of further fixed terms and statutory periodic tenancies followed, as is commonplace. A deposit of £1,050 was taken on the grant of the original tenancy and registered with the DPS.
A further fixed term tenancy was granted in May 2014. In July 2014, during the fixed term, Mr and Mrs Sebastiampillai purchased the flat subject to the tenancy, and became Ms Parr’s landlords.
By September 2014, the deposit had been transferred to the DPS account of Mr and Mrs Sebastiampillai. No prescribed information in connection with the deposit was sent to Ms Parr by Mr and Mrs Sebastiampillai.
By March 2018, Mr and Mrs Sebastiampillai had obtained a possession order in respect of the property on the basis of a Section 21 Notice under the Housing Act 1988. Ms Parr had been unrepresented during those proceedings. Ms Parr subsequently sought to appeal the possession order, by that time having the benefit of legal representation.
The question was whether Mr and Mrs Sebastiampillai had complied with the tenancy deposit rules.
Ms Parr argued that the deposit had been “received” anew by Mr and Mrs Sebastiampillai when they purchased the property (or, if later, in September 2014 when it was actually transferred to their DPS account), which triggered the obligations to protect the deposit and serve the prescribed information under Section 213 of the Housing Act 2004 (“the Act”).
Mr and Mrs Sebastiampillai argued that they had not “received” the deposit until May 2015, when the fixed term tenancy came to an end. They argued that the deposit had not been “received” anew when the landlord changed. They therefore sought to rely on the previous landlord’s compliance with the deposit protection rules, to get around their own failure to comply when the tenancy became a statutory periodic tenancy in May 2015.
The Court’s decision
The Court found that the deposit had been “received” by Mr and Mrs Sebastiampillai at least by September 2014 when it had been transferred to their DPS account.
This triggered the Section 213 obligations, which had not been complied with as no prescribed information had been served at the time or subsequently.
The previous compliance by the former landlord did not assist Mr and Mrs Sebastiampillai. Section 215B of the Act (inserted by the Deregulation Act 2015) does make provision for “deemed compliance” such that the landlord is not required to re-protect the deposit and re-serve prescribed information every time a new tenancy is granted (including statutory periodic tenancies), provided that they have complied with these requirements in connection with earlier tenancies. However, the Court held that Section 215B indicates that it is only the landlord who has actually given the prescribed information in connection with the earlier tenancy who should be treated as having complied with that requirement for later tenancies. Further, the Court held that the previous tenancies and the current tenancy should not be compared for these purposes, as the latter could not be said to have replaced the former given that the landlord party had subsequently changed.
The appeal was therefore allowed. The Section 21 Notice was not valid and the possession order overturned.
Careful considerations should always be had when it comes to selling or buying a property subject to an existing tenancy, especially when it comes to compliance with the tenancy deposit rules. As can be seen from the above, non-compliance can substantially affect the landlord’s ability to recover possession of the property on non-fault grounds based on a Section 21 Notice in the future, therefore specialist advice should always be taken. This is aside from any financial penalties the landlord may face for failure to protect the deposit and serve the prescribed information within 30 days of receipt.
The upshot of this case is that Mr and Mrs Sebastiampillai should have served new prescribed information when they received the deposit in September 2014. The Court found that the deposit had been “received” at least by September 2014, so there was certainly an argument that it was actually received earlier, in July 2014, when Mr and Mrs Sebastiampillai purchased the flat. To err on the side of caution, those purchasing subject to an AST should ensure that the deposit is correctly protected and registered in their name as the new landlord and new prescribed information given to the tenants within 30 days of their purchase, to avoid any later disputes.
For more information, please contact Faye Didcote at Faye.Didcote@kdllaw.com or telephone 01435 897297.
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