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What is a tenancy deposit scheme?
Posted: 3rd Sep 2020
 

Tenancy deposit protection – a simple guide for landlords

If you rent out property, you must protect the money your tenants pay you as a deposit in a government-backed tenancy deposit protection (TDP) scheme. Find out more about how deposit protection schemes work and your responsibilities as a landlord.

What is a tenancy deposit scheme?

Since April 2007 the law has required landlords in England and Wales to safeguard their tenants’ deposits in one of three government-approved TDP schemes.

The schemes which landlords can join are:

There are separate TDP schemes in Scotland and Northern Ireland.

As a landlord, you can decide which you choose. But you must inform your tenant, within 30 days of receiving their deposit, which TDP scheme you are using to safeguard their money.

There are also two different types of TDP – custodial and insurance-backed.

Custodial deposit schemes

Custodial schemes protect the whole of the deposit during the period of the tenancy. At the end of the tenancy, the deposit – or an agreed amount minus costs for any damage – is returned to the tenant by cheque or bank transfer.

The scheme has its own independent arbitration service. If the landlord and tenant can’t agree on any deductions, the arbiter will decide on a figure to be returned to the tenant. Ifthis isn’t acceptable to either party, the matter will need to go to court.

Custodial schemes are free of charge for landlords to use.

Insurance-backed

With an Insurance-backed TDP scheme, the landlord holds onto the deposit but pays a fee to the tenancy deposit scheme to insure the payment. The landlord should not use the money for any other purpose during the period of the assured shorthold tenancy. At the end of the tenancy, if the landlord and tenant agree on any deductions, the landlord will return the deposit to the tenant. As with the custodial scheme, any disputes will go to the scheme’s independent adjudicator.

More about deposits

You aren’t obliged to take a security deposit from your tenant, but it is advisable. While most tenants are responsible and will look after their home well, the deposit gives you a safety net in case damage is caused to the property or furnishings.

The Tenant Fees Act, which came into force on 1 June 2019, limits security deposits to the equivalent of five weeks’ rent.

If you take a holding deposit to secure the property until a tenancy agreement is signed, you do not need to protect it in a scheme. If, once the agreement is signed, the holding deposit becomes part of the security deposit it must be protected.

The benefits to you of a TDP

For landlords, the main benefit of a government-backed tenancy protection scheme is the independent arbitration, known as the alternative dispute resolution (ADR) service, which is included in membership of a scheme. This free dispute service is an advantage if landlords and tenants disagree about deductions for damage.

Should a dispute arise, you will need to provide evidence to the adjudicator to back up your claim. It is therefore vital that you are thorough in preparing your inventory at the start of the tenancy, taking photos and videos of the condition of the property and all fittings and fixtures.

Both the landlord and tenant must agree with the adjudicator’s decision. If you don’t, the matter will need to be decided by the courts.

Deductions from a deposit

There are various costs to landlords which can be deducted from a deposit at the end of the tenancy. You can only make these deductions with the agreement of the tenant, an independent adjudicator or the courts. Landlords are not allowed to withhold money without giving clear and legal reasons for doing so.

Reasons why you might withhold part of a deposit at the end of a tenancy:

  •  To cover any unpaid rent or bills
  • For any missing items that were listed on the inventory
  • For damage to the property and its contents, either deliberately or as a result of negligence
  • Failure to carry out any duties set out in the tenancy agreement, such as garden maintenance
  • Failure to the keep the property in a hygienic condition
  • Unwanted belongings left in the property after keys have been returned

Tenancy protection checklist

As a landlord, the law says you must:

  • Protect your tenant’s deposit in a government-backed scheme
  • Give your tenants the required information about the scheme
  • Do the above within 30 days of receiving the deposit

If you don’t, the court may order you to repay the deposit and also pay compensation to you tenant of up to three times the value of the deposit. You may also find it more difficult to evict your tenant, using a Section 21 notice, should you have reason to.

 

 
Guest post supplied by Property Division

 

 

Your home may be repossessed if you do not keep up repayments on your mortgage.