Tenancy Deposit Protection
Under the Tenancy Deposit Protection legislation introduced by the Housing Act 2004, landlords and agents are required to protect deposits, for all assured shorthold tenancies created since 6 April 2007, in one of three government-approved schemes.
The deposit is regarded as the tenant's money. This means that it should be returned to the tenant at the end of the tenancy, if they have honoured the terms of the tenancy agreement.
Each scheme offers an alternative dispute resolution service which is designed to make disputes over the repayment of deposits faster and cheaper to resolve than going to court.
How does Tenancy Deposit Protection work?
The landlord (or their agent) must protect the deposit in one of the three schemes within 30 calendar days from the day the deposit is received, not from when the funds have cleared. It is the landlords (or their agent) choice which of the three schemes they use to protect the deposit.
The landlord (or their agent) must provide the tenant with details, known as the Prescribed Information, of how their deposit has been protected within the same 30 day period.
The Prescribed Information that must be provided to the tenant includes:
- the landlord's name and contact details (or their agent);
- the amount of deposit paid and the address of the tenancy;
- details of the tenancy deposit protection scheme used;
- a copy of the deposit protection certificate signed by the landlord (or their agent);
- information about the purpose of the tenancy deposit protection scheme;
- how to get your deposit back at the end of the tenancy;
- what to do if there is a dispute about the deposit.
Who are the three government authorised Tenancy Deposit Protection schemes?
The current schemes are:
- Deposit Protection Service
- Tenancy Deposit Scheme
These schemes are either custodial or insurance-based.
A custodial scheme is free to use and is funded by the interest it receives on the deposits. The scheme holds the deposit in a bank account for the duration of the tenancy. At the end of the tenancy, the scheme passes the deposit to the person who is entitled to it.
Insurance-based schemes have a fee which is payable to insure against misappropriation of the deposit. The landlord or agent retains the deposit but pays the fee to the scheme which insures against the landlord or agent unlawfully retaining the deposit at the end of the tenancy. If the landlord or agent does not pay the tenant the amount they are owed at the end of the tenancy, the scheme pays the tenant through their insurance and will try to get the deposit back from the landlord or agent.
Who should protect the deposit - the landlord or the agent?
The deposit can be protected by either a landlord or an agent. However, the landlord is ultimately responsible for ensuring that the deposit is protected and that the statutory requirements of Tenancy Deposit Protection have been met.
The contract that the landlord has with the agent should make it clear what will happen with the deposit.
The return of the deposit at the end of the tenancy period is ultimately the responsibility of the landlord even if he or she has passed that responsibility on to a third party, such as an agent. Landlords are advised to satisfy themselves that the deposit has been properly protected and the statutory requirements met.
What are the penalties if a deposit is not protected?
- If a landlord fails to protect the deposit, the landlord cannot serve notice to regain possession of the property using the 'notice only' grounds under Section 21 of the Housing Act 1988 until either the landlord returns the deposit to the tenant in full or with such deductions as the tenant agrees; or, if the tenant has taken proceedings against the landlord for non-protection and those proceedings have been concluded, withdrawn or settled.
- If a landlord fails to provide Prescribed Information the landlord cannot serve a Section 21 Notice until the Prescribed Information has been provided.
- Courts can order landlords who fail to comply with the law on tenancy deposit protection to pay compensation to tenants (for deposits paid for assured shorthold tenancies that started or were renewed on or after 6 April 2007).
A court can order landlords to make a compensation payment of between 1 to 3 times the value of the deposit if a landlord:
- only protected a tenant's deposit after 30 days;
- failed to give the tenant details of the scheme used within 30 days;
- failed to protect a deposit.
A court can also order a landlord to protect a deposit in a scheme.
What happens to the deposit at the end of the tenancy?
At the end of the tenancy the landlord and tenant should agree on the return of the deposit and whether there should be any deductions.
Where the landlord and tenant agree how the deposit should be apportioned:
- under the custodial scheme, the scheme will pay out the agreed sum of money within 10 days of being advised of the agreement;
- under the insurance-based schemes, the landlord or agent will pay the tenant the agreed sum of money within 10 days of the agreement.
If the tenant is unhappy with the amount the landlord wishes to deduct from the deposit, or the landlord or agent refuses to engage in the deposit return process, the tenant is entitled to raise their dispute with the relevant tenancy deposit protection scheme. There is a legal process (single claim) to be followed if the deposit is protected with the custodial scheme in the event that either party refuses to engage in the deposit return process.
If the landlord and tenant do not agree how the deposit should be apportioned they must decide whether to use the scheme's alternative dispute resolution service or go to court.
For more details on alternative dispute resolution, visit the relevant tenancy deposit scheme website or the Shelter website - see Useful links