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The importance of protecting tenants' deposits following the recent decision in Sturgiss -v- Boddy
The recent case of Sturgiss -v- Boddy concerned the impact of the law on commonplace flat shares where the owner does not live at the property but allows others to do so and those others are unrelated to one another.
Under this arrangement it is common for one occupier to leave and find another to replace them. This exchange is referred to as a "churn". The incoming tenant will reimburse the outgoing tenant the notional share of the deposit they previously contributed in a amount agreed between the parties. The property owner or agent is informed of the change of tenants.
On 19 June 2004, Mr Boddy let his flat by way of a written assured shorthold tenancy to four individual joint tenants. He took a deposit of £1745 at the grant of the tenancy. At that time there was no obligation on landlords to protect such deposits and so the deposit was not protected. Mr Boddy made deductions for breakages at the property leaving a balance from the original deposit in the sum of £1205.
The Housing Act 2004 introduced a statutory requirement that Landlords protect tenancy deposits taken from assured shorthold tenants.
Some of the tenants issued a claim at Court against Mr Boddy for failing to protect their deposit at the churn which brought them each into the flat and sought damages from him.
Mr Boddy argued that the claimants and the current occupiers were mere licensees. They did not hold assured shorthold tenancies, so no obligation to protect any tenancy deposit arose when they took up residence in the property. Mr Boddy further argued that in any event, neither of the claimants had actually paid him any deposit or part thereof and as such there was nothing to protect and failure to protect nothing could not give rise to a penalty.
Deputy District Judge Brafield gave an immediate ex tempore judgement dismissing the claim. He held that the claimants were mere licensees. The churns which brought them to the flat were not the occasions of the grant of new assured shorthold tenancies. The judge further noted that the claimants had no standing to sue for the imposition of penalties for non-protection of the deposit because none had ever paid the owner a deposit.
The claimants appealed the decision and permission to appeal was granted. His Honour Judge Luba QC allowed the appeal and held that "where the Landlord has entered into a construct by which, at his own design, there is a single initial payment of a deposit and thereafter a churning in the identities of the tenants, he must be treated as having been paid by each new cohort, the amount held in respect of the original coherent and each subsequent cohort.”
As the Court found that the deposit should have been protected the claimants were awarded damages accordingly.
Effect on Landlords
The decision in the case has provided clarity for landlords regarding the legal status of occupiers in flexible house or flat share arrangements. Landlords need to be aware that each new occupiers will have the benefit of a tenancy when they move into the property.
Landlords in a similar position to Mr Boddy must protect any deposits that they obtained from the original tenants and should ensure that sum remains protected for as long as the flat share continues. This also applies to flat shares predating the Housing Act 2004 where there have been subsequent churns. If landlords fail to protect the deposits they have taken, then there is a real risk that they will face claims from their tenants or former tenants seeking damages from them. The damages awarded could potentially run to many thousands of pounds, especially if the flat share involves multiple changes of tenant.