DepositsDeposits
From 6th 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 6th 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.
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