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From 1 October 2010, the rent threshold for when a tenancy is an assured or assured shorthold will be increased from £25,000 to £100,000. The legislation making this change is here.
It was previously reported that the change would be retrospective. However, this is not the case, but all tenancies that are not assured or assured shorthold on 1 October will become so from that date onwards if they were not assured (shorthold) because of the rent threshold [s.1 Housing Act 1988.]
A landlord is well advised to protect the deposit and issue the prescribed information to ensure no problems. However, it is submitted that this may not be necessary unless a new tenancy agreement is granted.
We don't believe the deposit will need protecting because it is why a deposit was received that matters when protecting a deposit and not necessarily what may happen in the future.
213 Requirements relating to tenancy deposits
(1) Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.
Note the wording of s.213(1) above states that a deposit received in connection with a shorthold tenancy must be dealt with by a scheme.
When the deposit was received, it was not received in connection with a shorthold tenancy, and it was received with a contractual (sometimes known as common-law) tenancy. Section 213(3) goes on to say:
(3) Where a landlord receives a tenancy deposit in connection with a shorthold tenancy, the initial requirements of an authorised scheme must be complied with by the landlord in relation to the deposit within the period of 14 days beginning with the date on which it is received.
Again, it refers to receiving a deposit in connection with a shorthold tenancy. (Also note, contrary to popular belief, there is no reference to the "commencement" of a shorthold tenancy.)
It is submitted that because the deposit was never received in connection with a shorthold tenancy, section 213(1) and subsequent sub-sections do not apply. Therefore, there is no requirement to protect the deposit.
This is distinguished from a renewal.
The position is different if a landlord grants a new tenancy sometime on or after 1 October 2010. This is because the old tenancy has been surrendered, and a new tenancy has been granted (a surrender and re-grant by operation of law).
In this scenario, the deposit has technically been repaid to the tenant under the old tenancy. Then the landlord receives a new deposit under the new tenancy (even though no money changes hands).
See, for example, Coutinho v Atkinson Clerkenwell & Shoreditch County Court & Saad v Hogan Brentford County Court, 16 February 2009 (appeal heard in the County Court.)
There is no surrender and re-grant when the rules change on 1 October. What was a contractual tenancy becomes an assured shorthold tenancy, a little like when a fixed term assured (shorthold) tenancy ends; it becomes a statutory periodic tenancy.
A statutory periodic tenancy is not a tenancy that a landlord has any choice over as it is granted by statute. A renewal is a voluntary arrangement and provides a physical surrender and re-grant in particular where the length of the term is increased [Well Barn Farming v Backhouse [2005] 3 E.G.L.R. 109.]
The DCLG insisted that all deposits required protection within 14 days of 1 October 2010. However, it is being widely reported that they have revised their position after several commentators, including our website, said it wasn't necessary.
They now say:
We do not consider that deposits taken before 1 October will need to be protected as these were not taken in connection with a shorthold tenancy and therefore do not meet the criteria for protection specified in the Housing Act 2004.
However, agents and landlords should be aware that this is a matter for the Courts to decide and it would be wise to protect deposits on 1 October and certainly on any renewal of the tenancy.
If a landlord wishes to play it safe and protect a deposit anyway, we have confirmed with the Deposit Protection Service (custodial scheme) that even if the deposit doesn't need protection, they will accept any deposit, even for non-ASTs.
A potential problem with the change is if the old agreement's tenancy terms are incompatible with an assured shorthold tenancy. Or if terms are missing from the contractual tenancy that had a landlord or tenant known, this change would have been incorporated.
However, in essence, often, the clauses of the two types of tenancy will be similar, so the terms of the contractual tenancy would continue with the assured shorthold tenancy.
The main difference will be the notice period for a landlord. The current contractual tenancy will no doubt have a clause allowing the landlord to give one month's notice. However, this will be overruled by section 21 Housing Act 1988, and the usual two months' notice would be required.
As discussed above, after 1 October 2010, a section 21 notice will need to be served and NOT a notice to quit, as would have been the case previously. The landlord will not be able to forfeit the tenancy after the change. A section 8 notice will need to be served after the change should the landlord require possession on the grounds of rent arrears, breach of tenancy, etc.
Unfortunately, the rules that allow the threshold change don't allow any transitional provisions, and only the actual threshold figure will be changed.
One crucial point to watch out for is any tenancy granted after 15 January 1989 and before 28 February 1997, which was not assured or assured shorthold due to the threshold.
These tenancies would turn into assured tenancies and not assured shorthold tenancies.
This has the effect from 1 October 2010; the landlord could not serve a section 21 notice.
The section 8 notice will be available, including ground 8 (two months arrears). It's just section 21, two months, no reason notice unavailable. Also, there will be no question about any deposit in this case because it wouldn't need protection as a deposit only needs protection against assured shorthold tenancies.