To whom does section 215(1)(a) of the Housing Act 2004 apply?
Charalambous and Karali v Ng and Ng  EWCA Civ 1604 answers the question of whether a landlord is subject to the sanctions and penalties for non-compliance in sections 214 and 215 of the Housing Act 2004 even though they were never required by the scheme to protect the deposit they hold. Put another way, are all landlords who hold or held a deposit paid under an AST subject to the bar against serving a s21 notice (and possibly a claim) regardless of whether the payment of the deposit pre or post dated the introduction of the statutory tenancy deposit scheme?
The scheme was introduced in April 2007. This case explores whether the sanctions in s214 & s215 of the Landlord and Tenant Act 2004 extend to deposits received in respect of statutory periodic tenancies that arose before April 2007.
Section 215 of the Housing Act 2004 provides that a landlord may not serve a section 21 notice:
(1) [Subject to subsection (2A), if] a tenancy deposit has been paid in connection with a shorthold tenancy, no section 21 notice may be given in relation to the tenancy at a time when:
(a) the deposit is not being held in accordance with an authorised scheme, or
(b) section 213(3) has not been complied with in relation to the deposit.
In Superstrike v Rodrigues  1 WLR 3848, Lloyd LJ mentioned at paragraphs 43 and 44 that the Appellants raised the point that even if section 213 had not applied to the deposit as a result of the creation of the statutory periodic tenancy in 2008, nevertheless the terms of section 215(1) were such that it applies so as to prevent a section 21 notice from being served whenever a deposit is held which is not held in accordance with an authorised scheme. He stated
“I can see the basis for this argument on the literal words of the section. If it is right, it would have had extensive consequences when the legislation first came into force, since it would have required any deposit to be put into an authorised scheme before the landlord could serve a section 21 notice after the commencement date, even if there would have been no other obligation to do so under section 213. It is not clear how significant would be the effect of this point now, six years after the provisions first came into force.”
Lewison LJ was one of the three judges who heard that case. The point came to be decided in Charalambous and Karali v Ng and Ng  EWCA Civ 1604 Lewison LJ gave the lead judgement with which the other two judges agreed.
Initially, it was thought that section 214 and 215 only applies to those landlords who received tenancy deposits after 6 April 2007 when the Housing Act 2004 came into force and landlords were required to place deposits into one of the statutory authorised tenancy deposit schemes.
Along came Superstrike, which decided that section 215 applied to deposits where the statutory periodic tenancy arose after 6 April 2007 even if the deposit was initially received before the statute came into force. The deposit was notionally “received” again when the statutory periodic tenancy arose.
Until today however many considered that section 215 did not apply to those landlords who received tenancy deposits actually and notionally before 6 April 2007 and that such landlords were not required to place them into an authorised scheme.
Section 215(1)(a) provides that a landlord cannot serve a valid section 21 notice at any time when it is not being held in accordance with an authorised scheme. On one reading, s215(1)(a) ensured that where the landlord complied with the “initial requirements” of s213(3) and served the prescribed information required under s213(6) within 30 days of receipt of the deposit, s215(1)(a) served to ensure that they were prevented from serving a section 21 notice unless at that time they were dealing with the deposit in accordance with the requirements of the authorised scheme. The Court of Appeal consider (at paragraph 22) of Charalambous that there was no realistic scenario in which a deposit once paid into a scheme would not thereafter be held in accordance with the authorised scheme.
The Court of Appeal has held that s215(1)(a) serves to ensure that all tenants deposits are protected so that those landlords not otherwise caught by sections 213 to 215 of the Housing Act 2004 are nevertheless required to place the deposit in an authorised scheme if they wish to serve a section 21 notice.
The Court of Appeal’s reasoning:
- Landlords in Mrs Ng’s position were not and never have been required to comply with the s213 obligations.
- It was not possible for such landlords to comply with the s213 within the necessary timeframes.
- Because such landlords were never subject to section 213, they probably cannot be said to have failed to comply with them.
- Accordingly, such landlords would probably not be subject to a claim by the tenant for one to three times the deposit under s214.
- In any event the 2012 amendment did allow landlords in Mrs Ng’s position a 30 days grace period to secure the deposit and be put into the position of someone who had complied.
- The meaning of s215(1)(a) is separate from any question of complying with s213.
- All that s215(1)(a) does is to focus on the position at the time of service.
- It provides that no one holding a deposit which is not secured can serve a s21 notice.
- Therefore a landlord in Mrs Ng’s could enable themselves to serve a s21 notice by either:
- Repaying the deposit.
- Securing the deposit late (regardless of the fact that she would have been outside the timings in s213).
- In effect therefore s215(1)(a) operates to impose a simple precondition for anyone wanting to serve a s21 notice. This is a condition that if there is a deposit it must be secured or repaid at the moment in time when a section 21 notice is served.
The court did not decide whether compliance with s215(1)(a) would be sufficient to enable such a landlord to serve a valid section 21 notice though. The Court of Appeal accepted that this depends on how section 215(1)(b) should be read:
(a) Are all landlords required to protect deposits, comply with the initial requirements and serve the prescribed information during the period of grace given by Article 16(2) of the Localism Act 2011 (Commencement No 4 and Transitional, Transitory & saving Provisions) Order 2012/628 (see paragraph 27)?
(b) Or, does section 215(1)(b) not apply to landlords like Mrs Ng because the period of grace only applied to landlords required to comply with the requirements of section 213 but who had not done so? Mrs Ng never had an obligation to comply with section 213(3) because she had not received the deposit, both in reality and notionally, before section 213 came into force.
(c) At paragraph 28 of the judgement, Lewison LJ opined that he was inclined to consider that s215(1)9b) did not apply to Mrs Ng, without deciding the point.
Where are we now?
It is believed that the decision against the landlord in this case would affect a large number of landlords with long term tenants who understandably believed that the scheme did not apply to them and the deposits they hold.
At paragraph 24, the Court of Appeal considered that if Mrs Ng wishes to serve a valid section 21 notice one option available to her would be to comply with section 215(1)(a) by placing the deposit in an authorised scheme and then serving the notice. However, because of the remaining uncertainty as to whether s215(1)(b) and s215(2) will subsequently be held to apply to landlords in her position, she could find herself in further litigation. It would seem that only by returning the deposit to her tenants could a landlord in Mrs Ng’s position serve a valid section 21 notice.
At paragraph 32 of the Judgement, Lewison LJ noted that clause 31 of the Deregulation Bill is progressing through Parliament. The Courts’ approach in Superstrike and the difficulties it has caused for landlords are being addressed by the Deregulation Bill 2014.
However, as Lewison LJ noted the Deregulation Bill does not address the difficulties created for landlords in Mrs Ng’s position by Charalambous.
It is clear Parliament will have to think again as the Bill does not go far enough to address the position of all of the unsuspecting landlords who would be caught by the sanctions under the tenancy deposit scheme despite being ostensively outside of the scheme.
For further information, please refer to the judgment in Charalambous and Karali v Ng and Ng  EWCA Civ 1604