Deposits in flatshares- the Court's approach

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24 August, 2021

The Courts have recently reached a decision in relation to deposits taken in flat share situations where tenants change over time, but no additional deposits are paid to the landlord.

Sturgiss & Gupta v Boddy & Ors- facts

The landlord, Mr Boddy, rented out a property in 2004 to 4 tenants and took a deposit of £1,205. At that time, there was no requirement for deposits to be protected and so Mr Boddy simply retained the funds.

The arrangement was a flexible flat share, whereby despite the 4 original tenants entering into an assured shorthold tenancy, they were permitted to leave at any stage and the tenants decided amongst themselves who would move in to replace the existing tenant. Part of this involved new tenants paying the outgoing tenant their respective share of the deposit, to be discussed and agreed upon amongst themselves. Over time, many tenants came and went, and the landlord was never involved, either in granting new tenancies or in addressing the deposits.

In August 2020, 2 exiting tenants issued proceedings against the landlord for his failure to protect the deposit. They argued that:-

  • Each time the occupants changed, this amounted to a new tenancy by way of a surrender of the old tenancy and the re-grant of a new tenancy.
  • Each time a new tenant paid the exiting tenant their share of the deposit, although no monies physically went to the landlord, the monies already held were "carried over" and on each occasion, the landlord had failed to protect the deposit.

Court Decision

In the first instance, the Courts found in favour of the landlord, and this was appealed. HHJ Luba QC found that the landlord's acceptance of a new arrangement each time a tenant left and a new tenant joined, amounted to surrender and re-grant of the tenancy. HHJ Luba QC went on to say 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. 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 each sum as is left after proper deduction in respect of acts for which they are not responsible and have assumed no responsibility."

The tenants claimed the maximum compensation of 3 times the deposit value for each of the landlord's failures to protect, i.e. each change in cohort following their commencement as tenants. Helpfully, HHJ Luba QC considered the "spectrum of landlord culpability" and concluded that to impose a multiplier in excess of 1x would be unjust for the following reasons:-

  1. The deposit was taken at a time when deposits were not required to be protected.
  2. The deposit had been retained.
  3. Mr Boddy did not protect the deposit because he believed that due to the informal nature of the arrangement, he did not need to protect it.
  4. Mr Boddy's views were supported by his legal advisers and at least 1 Judge.
  5. The informal arrangement was meant to ensure that each outgoing tenant would be reimbursed for their share of the deposit.
  6. Mr Boddy gave an undertaking to protect the deposit he currently held if the decision went against him.

Compensation was therefore awarded in the sim of £3,615 which was the original deposit of £1,205 times 3 for each change in tenants to which the Claimants were present for.

What does this mean?

Deposit protection is a tricky subject and there are few senior court decisions addressing issues involving the change of tenant or the grant of a new tenancy agreement. With students hopefully being permitted to return to campus in the coming weeks, this will be a subject that landlords will need to ensure they understand.

For more information contact Samantha Abdoollah in our Dispute Resolution department via email or phone on 01254222456. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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