Tenancy Deposit Protection Schemes

In April 2007 legislation came into force which stated that all deposits taken by landlords for assured shorthold tenancies in England and Wales, must be protected by a tenancy deposit protection scheme. From this date, tenants should ask their landlord about the details of the scheme when taking on a new tenancy or signing a new tenancy agreement. The legislation does not affect assured shorthold tenancies taken before April 6th 2007 unless a landlord has issued a new tenancy agreement.

Tenancy Deposit Protection has been introduced:

1. To ensure good practice in deposit handling, so that when a tenant pays a deposit, and is entitled to get it back, they can be assured that this will happen.
2. To assist with the resolution of disputes by having an Alternative Dispute Resolution service (ADR). It will also encourage tenants and landlords to have in place, from the outset, clear agreement on the condition of the property through best practice, such as the use of inventories, and agreement on the condition of the property.

Landlords will be able to choose between two types of scheme to protect the cash deposit that they receive from the tenant: a single custodial scheme and two insurance-based schemes.

Custodial Scheme

• The tenant pays the deposit to the landlord;
• The landlord then pays the deposit into the scheme;
• Within 14 days of receiving a deposit, the landlord must give the tenant the prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties;
• If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair;
• The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will used to offer interest to the tenant, or landlord if the tenant isn’t entitled to it.

The Deposit Protection Service (The DPS) – will be running a custodial deposit protection scheme. It is free to use and open to all Landlords and Letting Agents. Landlords and Letting Agents will be able to register and make transactions online.

Insurance Based Schemes

• The tenant pays the deposit to the landlord;
• The landlord retains the deposit and pays a premium to the insurer - the key difference to the custodial scheme;
• Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit;
• If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved.
• If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

One of the insurance based schemes will be run by Tenancy Deposit Solutions Ltd (TDSL). More information is available on the My Deposits website.

The Tenancy Deposit Scheme (TDS) is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service. More information is available on the Tenancy Deposit Scheme website or call 0845 226 7837.

The DirectGov website provides further information on the tenancy deposit protection schemes.