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Deposits

From 6^th April 2007, the Tenancy Deposit Protection (TDP) scheme applies to all deposits (up to £25,000) taken by landlords for assured shorthold tenancies.

The scheme was introduced to ensure good practice in handling deposits so that a tenant who pays a deposit and is entitled to get it back can be assured that it will be repaid. Where there is a dispute about repayment, the scheme encourages the use of Alternative Dispute Resolution (ADR).

The scheme applies to all assured shorthold tenancies, not to assured tenancies. It will only apply to assured shorthold tenancies that began on or after 6^th April 2007. Deposits paid for tenancies that commenced before that date are not subject to deposit protection.

If however a new tenancy agreement is granted to an existing tenant after that date (where for example an earlier agreement has come to an end), any deposit paid at the start of the first tenancy will be caught by the scheme. Deposits paid by tenants who ‘hold over’ without a new agreement will not fall into the scheme.

How does it work?

Landlords are able to choose between two types of scheme: a custodial scheme and two insurance based schemes.

Custodial scheme:-

• Once a deposit is paid to the landlord, it must be paid into the scheme.
• Within 14 days of receiving the deposit, the landlord must give the tenant certain prescribed information about the scheme being used and the tenancy.
• At the end of the tenancy, if landlord and tenant agree about how the deposit should be divided, they tell the scheme which will return the deposit divided as agreed.
• If there is a dispute, the scheme will hold the deposit until the dispute is de-iced by ADR or the courts.
• Interest accrued is used to pay for the running of the scheme, with any surplus being paid to the tenant (or the landlord if the tenant is not entitled to any money back).

Insurance-based schemes:-

• The tenant pays the deposit to the landlord.
• The landlord retains the deposit but pays a premium to the insurer.
• Within 14 days of receiving the deposit, the landlord must give the tenant certain prescribed information about the scheme being used and the tenancy.
• At the end of the tenancy, if landlord and tenant agree about how the deposit should be divided, the landlord returns all or part of the deposit as agreed.
• If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved.
• If for any reason the landlord fails to comply, the insurance arrangements will ensure that the deposit is returned to the tenant if they are entitled to it.

What happens if there is a dispute?

Each scheme will contain an Alternative Dispute Resolution service which is free to both landlord and tenant. If a dispute occurs, and both landlord and tenant agree to use ADR, they will also agree to be bound by its decision with no recourse to the courts.

A dispute will only go to court if the parties cannot agree to use ADR.

Who runs the scheme?

The custodial scheme is run by the Deposit Protection Service (DPS) and is the only custodial scheme. Landlords and agents can register and make transactions online by visiting  www.depositprotection.com. There is a dedicated call centre for the scheme and its ADR service on 0870 707 1707.

There are two insurance based schemes:-

• Tenancy Deposit Solutions Limited – is a partnership between the National Landlords Association and Hamilton Fraser Insurance. See www.mydeposits.co.uk
• The Tenancy Deposit Scheme – is run by the Dispute Service Limited and builds on a scheme established in 2003 to provide a dispute resolution and complaints handling service for the letting industry. See www.tds.gb.com.

What happens if a landlord does not protect a deposit?

• Restrictions on possession  - A landlord will be unable to regain possession  of a property by giving notice under section 21 Housing Act 1988 if the deposit has not been safeguarded and notice given to the tenant.
• Fine – a tenant can apply to the court for an order requiring the deposit to be safeguarded. Where the court believes that the landlord has failed to comply or the deposit is not held in an authorised scheme, the court must either order the landlord to repay the deposit with 14 days or to pay it to the custodial scheme administrator.  The court must also order the landlord to pay the tenant a fine of three times the amount of the deposit within 14 days.