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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:

Who are the three government authorised Tenancy Deposit Protection schemes?

The current schemes are:

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?

A court can order landlords to make a compensation payment of between 1 to 3 times the value of the deposit if a landlord:

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:

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