Tenancy deposits for rented properties with ‘disorganised comings and goings’

There is a kind of property letting which for years I have described as ‘disorganised comings and goings’.

This is where a landlord lets out a property to joint tenants, but then ceases to have any involvement in the management of the property other than collecting the rent.

If an occupier leaves, he or she finds a replacement to take his or her place, and then pays the departing tenant his or her share of the deposit.

This can continue for years.

It is not a new phenomenon – I know of a case where this happened in the 1980’s.

But if you are a lawyer or know anything about the law you will realise that it is not a good idea. Despite this, there are many properties where tenants come and go without reference to the landlord, who has effectively lost control of his own property.

So. In a ‘disorganised comings and goings’ situation – what is the legal status of the occupiers? This is what HHJ Luba QC was called upon to decide in the case of Sturgiss & Anor v Boddy & Ors.

Sturgiss & Anor v Boddy & Ors [2021]

In this case, a three bedroomed property had been let to tenants in 2004. Many occupiers had come and gone in the years since, finding their own replacements with the incoming replacement occupier paying the outgoing occupier their share of the deposit.

This continued until two outgoing occupiers made a claim against the landlord for the penalty as the deposit had not been protected.

The case at first instance

Here the claimants lost as the Deputy District Judge accepted the landlord’s argument which was that the occupiers were licensees, as  (per Giles Peaker in Nearly Legal)

a) there was no surrender and regrant of tenancy with each new occupier, as the landlord was not actively consulted about the matter and did not have the opportunity to negotiate new terms
b) anyway, these were not tenants but mere licensees, apparently on the basis of lack of exclusive occupation, and lack of a definable term or notice period; and
c) the deposits had not been paid to the landlord

The case was dismissed with a £600 costs award to the landlord.

The occupiers appealed saying that all three arguments were incorrect and the case came before His Honor Judge Luba QC.

The appeal decision.

The law on tenancies and licenses is found in the case of Street v. Mountford.

This says that, if there is rent, exclusive occupation and a term, in most cases there will be a tenancy. So what about this case?

• there was rent
• there was no evidence that exclusive occupation was not enjoyed by the tenants. There was no suggestion that the landlord could turn up and require the tenants to let him enter and live there, and
• The rent was monthly, so there was a strong reason to believe that there was a monthly term.

So on the face of it, this looks like a tenancy.

But what about the disorganised comings and goings? If the landlord had no part in choosing or approving the occupiers, could he be bound by them as tenants?

Surrender and re-grant

Well, apparently he could, as this had happened (in different circumstances) in a 1994 case called Tower Hamlets v Ayinde.

In the Tower Hamlets case the landlord was held to be bound by the occupier as a tenant as

the landlord’s acceptance of the new set-up amounted to a completion of the process of surrender and re-grant even in circumstances where it had not known of the switch of occupiers when or before it took place.

In our case, the landlord’s treatment and acceptance of the new occupiers as tenants, by accepting rent if nothing else, meant that there had been a process of surrender and regrant, meaning that they were all tenants.

So, the Judge concluded, with every new occupier (or ‘churn’) a new tenancy would be created with all of the current occupiers as joint tenants.

This argument was supported by an argument based on ‘estoppel’, the Judge saying:

As explained in QFS (Sable v QFS Scaffolding Ltd in 2010), the authorities on surrender are infused by the concept of estoppel i.e. the landlord who has acted consistently with the termination of a tenancy and the acceptance of a new tenancy cannot later resile.

In the current context, it would be absurd to think that the landlord could insist that an individual who was a joint tenant before a ‘churn’, and had left after it, was still a tenant even though he was accepting rent he knew (or can be taken to have known) was being tendered on behalf of a new group.

(We reported on the QFS Scaffolding case here)

What about the deposit?

Here the Judge held that although the money had not been paid directly to the landlord, the landlord ‘took the deposit anew’ every time the tenancy changed.

This is based on the case of Superstrike Ltd v Rodrigues where the Court of Appeal’s view was that when a tenancy transitioned from a fixed term to a statutory periodic tenancy, the landlord took the deposit anew by way of set off.

The Judge said

It seems to me 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 tenants, he must be treated as having been ‘paid’, by each new cohort, the amount held in respect of the original cohort and each subsequent cohort.

The alternative is the very artificial notion that Mr Boddy is fixed with an indefinite liability to account to his original (and long gone) 2004 tenants for such sum as is left after proper deduction in respect of acts for which they are not responsible and have assumed no responsibility.

So every time there was a ‘churn’ there was a new tenancy and the deposit was treated as having ‘received’ by the landlord.

So as the deposit was not protected, the landlord was in breach of the deposit regulations and was liable for the penalty.

However, as the landlord, Mr Boddy, had genuinely believed he did not need to protect the deposit (as it had been paid in 2004 before the deposit regulations came into force) and as his argument had been accepted by at least one Judge (in the first instance case) the Judge made the lowest award possible of 1x the deposit sum.

So what is the law now on disorganised comings and goings?

The Judgement in this case does not deal with the situation while some of the original tenants remain in the property.

My view is that here the new occupiers would be lodgers, but I suppose if this situation comes before a Court it would depend on the facts. I have to say though that I am unhappy about the idea of a surrender and re-grant in these circumstances.

However, assuming HHJ Luba’s decision is not challenged, once the final ‘original’ tenant has gone, all the occupiers will acquire a share of a joint tenancy under the surrender and regrant rule, and that the tenancy will be granted anew every time there is a ‘churn’.

Assuming, presumably, the landlord does not raise objections to the new occupier.

This is actually good news for landlords, as it means that if they want to evict the tenants, they don’t have to name the original tenants and serve possession proceedings on people who left many years ago and whose whereabouts will in most cases be unknown.

However, it does mean that landlords need to re-protect their tenancy deposits every time a new occupier comes into the property and pays the outgoing tenants ‘share’ of the deposit back to them.

And finally

Although the legal consequences of letting on a ‘disorganised comings and goings’ basis has been clarified somewhat by this decision, it is still partly uncertain.

So my advice to all landlords is to NEVER allow this situation to arise in the first place! If you do, things may go on well for a while, but eventually, you will find yourself caught by the regulations which could prove extremely expensive for you.

For example, I doubt whether, after this case, any landlords of ‘disorganised comings and goings’ tenancies will be given such a low penalty should their tenants bring a claim for the deposit penalty award.

For more details of the case, see Giles Peaker’s excellent post on Nearly Legal here.