Landlord deposit schemes
A guide to tenancy deposits
Tenancy deposit schemes protect security deposits for tenancies starting from 6 April, 2007. They also help landlords and tenants resolve disputes over money at the end of the tenancy.
Landlords’ responsibilities
There are many benefits of renting out a home, but there do come responsibilities with such an endeavour. Landlords need to protect their tenant’s deposit in a government-approved tenancy deposit scheme within 30 days of receiving it from them. Landlords must also give the tenant ‘prescribed information’ which is detailed below.
Penalties
Failure to comply with using a deposit scheme carries potentially severe penalties for landlords.
If the landlord does not protect a deposit or does not give the tenant the prescribed information they can be taken to court.
If the courts find the landlord has not protected the deposit, they can be ordered to pay the deposit into a deposit scheme within two weeks if the tenancy is on-going plus a penalty of up to three times the amount of the deposit to the tenant; alternatively, the landlord can be forced to repay up to three times the original deposit plus the deposit back to the tenants.
How much deposit can landlords take?
Landlords can take up to the equivalent of five weeks’ rent if the annual rent is under £50,000. If the annual rent is £50,000 or more, landlords can take up to the equivalent of six weeks’ rent.
Landlord deposit protection options
There are two types of deposit schemes: custodial and insured schemes
Custodial schemes: with these schemes the tenant’s deposit is transferred to the tenancy deposit scheme until it is released at the end of a tenancy. Custodial schemes are free to use; landlords simply transfer the deposit over to the scheme within 30 days of receiving it.
Insured schemes: these schemes use insurance to cover the deposit if it’s misappropriated and as a result the landlord must pay a fee to protect it. In an insured scheme, the landlord, or their agent, holds the deposit for the duration of the tenancy.
Alternatively, landlords can choose to use a deposit replacement product instead of taking a traditional cash deposit. Tenants pay either a one-off non-refundable fee, or a smaller monthly fee to protect the landlord against damage to the property. Landlords get the same financial protection as traditional cash deposits while tenants get greater financial flexibility.
Prescribed information
Once the deposit has been protected in a scheme, landlords are required to provide their tenants with all the ‘prescribed information’. This includes:
- Once your landlord has received your deposit, they have 30 days to tell you:
- the address of the rented property
- how much deposit you’ve paid
- how the deposit is protected
- the name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service
- their (or the letting agency’s) name and contact details
- the name and contact details of any third party that’s paid the deposit
- why they would keep some or all of the deposit
- how to apply to get the deposit back
- what to do if you can’t get hold of the landlord at the end of the tenancy
- what to do if there’s a dispute over the deposit
The prescribed information should be signed by the landlord (or letting agent) and the tenant.
In short, the tenant should know who to contact if they have a question about the deposit at any point.
Third-party deposits
If the deposit is paid by a third-party it must still be protected in a scheme as normal. The landlord will need to give the prescribed information to both the tenant and the third-party.
At the end of a tenancy
Tenants receive their deposit in full at the end of the tenancy, assuming three primary conditions are met. Those conditions are that:
- tenants have met the terms of the agreement
- there is no damage to the property
- rent and bills have been paid in full
If those conditions are met, the deposit is returned in full. Damages and rent arrears can be paid out of the deposit with the agreement of both parties or after following the dispute resolution, or court process.
Resolving disputes with a landlord
If a dispute arises at the end of a tenancy and the deposit is protected in an insured scheme and still held by the landlord, the disputed amount must be transferred to the deposit scheme until the dispute is resolved and the undisputed amount should be refunded to the tenant.
Simple communication and referring to the original contract (tenancy agreement), as well as comparing the inventories from the start and end of the tenancy, is often sufficient to deal with most issues.
Most disputes over the deposit are resolved quickly; only a small percentage require an adjudicator to decide the issue. The adjudicator is provided by the scheme and can award the deposit money as they see fit. The adjudication process involves presenting evidence for the tenant’s and landlord’s claims, reviewing the proposed costs, and making a final decision.
Landlords can’t claim more than the original deposit amount. For more extreme cases, disputes will need to be resolved by taking legal advice and using the court system.
Dispute resolution services provided by the deposit schemes are free for both tenant and landlord.
When do tenants get their money back?
Landlords are required to return the deposit within ten days of the tenant formally requesting it or agreeing on the amount. When a dispute has gone to adjudication, the scheme will allocate the deposit at the conclusion of the adjudication.
When do landlords keep the deposit?
Landlords should never keep any part of the deposit without first discussing the matter and agreeing the amount with the tenant, or after going through adjudication.
While schemes sound complicated, the reality is quite straightforward. Assuming both parties follow the rules, the deposit should be protected for the duration of the agreement and returned in full at the end, provided the tenant pays their rent and does not damage the property.
mydeposits is the only government approved deposit scheme to offer all three types of deposit protection scheme; custodial, insured and deposit replacement.