Deregulation Act: Do your residential lettings comply with new rules?

Are you a residential landlord? The laws surrounding residential property lettings have recently changed in a bid to make them simpler and clearer.

But with the changes come new responsibilities for residential landlords. Harrison Drury’s residential property law expert Laura Hallett Lea explains.

An awareness and understanding of the Deregulation Act 2015 is now key to all landlords and lettings agents as it has big implications for deposits, notices and possession claims.

Landlords and agents should particularly note the provisions of the Deregulation Act (DA) which will apply to tenancies entered into after 1 October 2015 regarding disrepair.

Tenancy Deposits

Despite the Tenancy Deposit Scheme legislation coming into force in April 2007 requiring tenancy deposits taken after that date to be lodged in a Government Approved Tenancy Deposit Scheme (TDS), there is still confusion among landlords and letting agents regarding how the regulations should be interpreted.

In addition, the sanctions for non-compliance are harsh. If you don’t comply you cannot serve a section 21 notice (non-fault-based notice requiring possession) and could be ordered to pay the tenant compensation up to the value of three times the deposit taken. The intended purpose of the DA is to restore common sense to this area.

Prior to March 2015, the court in the case of Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 held that a deposit taken in relation to an Assured Shorthold Tenancy (AST) that commenced prior to April 2007, should have been registered at the time that the initial fixed-term expired and the tenancy became periodic. This decision was further affirmed in the later case of Charalambous & another v NG & another [2014] EWCA Civ 1604 in similar circumstances.

The effect of both of these judgments was that the prescribed information needed serving not only when the deposit was taken, but again after the tenancy moved from a fixed-term to a rolled-over or periodic tenancy. This meant that most landlords (and agents) whom took a deposit from a tenant and which tenancy had rolled over from the fixed-term were now in breach of the tenancy deposit rules leaving them with tenants they will not easily be able to remove and claims to compensation.

Given that the original intent behind the TDS legislation was to guard tenants against unscrupulous landlords who retained deposits without good reason or lawful basis, or whom became insolvent; the view of many was that the court had gone too far in Superstrike and Charalambous. The DA agrees and amends the position with effect from March 2015 as follows:

1. If a landlord took a deposit in respect of a fixed term AST before 6 April 2007 which then became periodic after 6 April 2007, then that landlord will not be jeopardised if it protected the deposit and the prescribed information within 90 days of 26 March 2015.
2. If the landlord took a deposit after 6 April 2007, which it registered in the TDS and served the prescribed information, then the AST becomes a statutory periodic tenancy, the landlord’s compliance with the TDS legislation in respect of the original AST will be sufficient.
3. Any landlord of an AST that became periodic before the tenancy deposit scheme came into force on 6 April 2007 should protect those deposits; however, the DA confirms that there is no financial penalty for failure to do so.
4. In the prescribed information, it is acceptable to give the tenant the details of an agent who protected the deposit for the landlord rather than the landlord themselves.

Section 21 Notices

In relation to Section 21 Notices, the DA specifically addresses a key area of dispute with these notices – the expiry date. A Section 21 Notice does not need to specify the last day of a period of a tenancy as the expiry date and therefore, removes the potential argument over the validity of the notice.

In order to balance this, the DA also adds in an express provision entitling the tenant to a refund of any over-payment of rent mid-way through a rent payment period.

This is not, however, the end of the story. Section 38 of the DA permits the Secretary of State to make regulations prescribing the form of Section 21 notice to be served. Once these regulations have been passed, the procedure for serving a Section 21 notice should be much simpler and clearer; however, the effect will remain to be seen.

Retaliatory evictions

The DA introduces new provisions to protect tenants from eviction in England only coming into force from 1 October 2015. These provisions restrict the landlord from serving a Section 21 notice in relation to AST granted on or after 1 October 2015 when the tenant has complained about the condition of the premises and the landlord has either failed to respond; not responded adequately; or has responded by serving a Section 21 notice.

It is foreseeable that these new provisions will be problematic for landlords, as there is potential for there to be disagreement between landlord and tenants regarding the extent of disrepair at the property; why the complaint has been made at this time; whether the landlord has responded adequately; and what action should be taken and in what timescale. The concern is that a clever tenant may use these new provisions to attempt to extend the possession process by months or even years, even if the disrepair claim against the landlord turns out to be unjustified.

What action should I take now?

Landlords and lettings agents should be aware of the DA and the amendments to the current legal position on residential tenancies.

Landlords would be advised to act quickly to take immediate advice regarding any unregistered tenancy deposits; the service of prescribed information; or where the tenant is raising any issue regarding the repair of the property.

It also may take some time for the court’s standard forms to catch up with the new law meaning that landlords should take specialist advice as to the drafting and service of notices and the possession claims themselves.

For more information on how the Deregulation Act 2015 affects your residential lettings call Laura Hallett Lea on 01772 258321.