As we start 2015, it seems likely that the next 12 months are going to prove testing times for landlords in the residential sector.

In our November 2014 edition we commented on how the government is requiring private landlords to assist in tackling illegal immigration in privately rented accommodation; but in addition to that issue comes the bad news for landlords from the Charalambous decision.

Charalambous and Karali v Ng and Ng

This case concerned the application of the rules on tenancy deposit schemes for Assured Shorthold Tenancies and whether, if a landlord held a deposit from a time before the obligation to protect such a deposit, the sanctions and penalties for non-compliance with the scheme set out in the Housing Act 2004 applied where that landlord did not then comply with the scheme once it came into force.

The tenant (C), became the tenant of residential property in 2002 and, at the same time, paid a deposit to the landlord (Ng) of £1,560. Thereafter, there were a couple of renewals with the original deposit being credited to the renewed tenancies. The last formal tenancy expired during 2005 and was then replaced with a statutory periodic tenancy pursuant to the statutory rules.
Nothing then changed of relevance to this question (save for the introduction of the rules on the protection of deposits) and, in 2012, Ng served a notice under s.21 of the Housing Act 1988 requiring C to give up possession.

C challenged the entitlement of Ng to serve such a notice given that its deposit had not been protected under the rules. At first instance, the Court decided that the s.21 notice was valid and the issue was then considered before the Court of Appeal.

The Court of Appeal, however, disagreed and held the s.21 notice to have been invalid (and so Ng was not entitled to possession). In reaching this conclusion, the Court of Appeal stated as follows:

  • landlords in Ng's position were not, and never have been, required to comply with the obligations of the scheme.
  • it was not possible for such landlords to comply with the scheme within the necessary timescales and, accordingly, such landlords probably cannot be said to have failed to comply with the scheme rules.
  • accordingly, such landlords would probably not be subject to a claim for damages under the sanctions and penalties provisions.
  • the amendment to the rules in 2012 had allowed landlords such as Ng a 30 day grace period in which to secure the deposit and be put into the position of a landlord who had complied.
  • the statutory rules preventing service of a s.21 notice where the deposit had not been protected were separate from the penalties for failure to comply with the scheme and focussed on the position at the date of service. Accordingly, no-one holding a deposit at the time of service of a s.21 notice that is not protected for the purposes of the scheme rules can serve a valid s.21 notice.
  • on that basis, a landlord in Ng's position, in order to serve a valid s.21 notice, only has two options available:
    - repay the deposit to the tenant; or
    - protect the deposit in the scheme late.

This leaves landlords in the same position as Ng in a state of uncertainty if they want to bring such tenancies to an end via s.21 notice. They must either protect the deposit late and run the risk of action being taken for late protection (and that potentially of its own preventing termination by s.21 notice) or they must return the deposit leaving them without that element of security for the tenant's obligations.

The only alternative to this approach is to seek possession by service of a s.8 notice. This, however, is potentially far more treacherous for landlords (due to the need to prove grounds for possession rather than simply rely on the service of a valid notice) than the s.21 approach and for those reasons does not bring with it the same certainty of possession.

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