Deposit Protection Schemes

If you rent out a property or a room in a property on an assured shorthold tenancy (AST) which started after April 6th 2007, you must protect your tenant’s deposits in a tenancy deposit scheme. NB – this doesn’t apply to landlords renting to lodgers.

 Scotland has its own scheme. Click here for info on tenancy deposit regulations in Scotland.

What is the purpose of the scheme?

• To ensure that tenants receive their full deposit back given they meet the terms of the tenancy agreement, pay their rent and bills and don’t damage the property
• To help in resolving disputes around deposit amounts
• To encourage landlords and tenants to make the terms and conditions of the lease clear from the outset to avoid disputes occurring

Types of Tenancy Deposit Scheme

There are three different schemes contracted by the government to protect deposits:

• The Deposit Protection Service (The DPS)
• MyDeposits
• The Tenancy Deposit Scheme (TDS).

Each of these offers two types of scheme, either custodial or insurance-based.

 

Custodial

• The tenant pays the deposit direct to the landlord who then pays it into the scheme
• At the end of the tenancy, if both parties agree to the amount of deposit returnable, the scheme is notified and returns the deposit to be divided as agreed
• If there’s a dispute as to the amount of deposit to be returned, the scheme will hold on to the deposit until this is resolved
• Interest on payments held during dispute settlement will be used to pay for the running of the scheme with any left over paid to the tenant (or the landlord if the tenant isn’t entitled to it)

Insurance-based

• The tenant pays the deposit direct to the landlord, which the landlord retains
• The landlord pays a premium to the insurer
• At the end of the tenancy, if both parties agree to the amount of deposit returnable, the landlord returns the appropriate amount of the deposit
• If there is a dispute the landlord must hand over the disputed amount to the scheme for safe-keeping until this is settled
• If the landlord fails to comply, the insurance arrangements will ensure that the tenant receives back the amount of the deposit they are entitled to

Under both schemes the deposit must be returned within 10 days of agreement or settlement of any dispute.

Landlords have 30 days to protect a deposit and supply their tenant with the relevant information. If they don’t comply they can face legal proceedings and a fine of up to three times the amount of the deposit in question.

For more information on the scheme visit the Shelter website or see Direct.gov.uk