TENANCY DEPOSITS

WHAT WE NEED TO KNOW

The Law
From 6 April 2007, landlords will be required to protect deposits taken from tenants by joining a tenancy deposit scheme in order to safeguard the deposit.

The scheme will apply only to assured shorthold tenancies in England and Wales where a deposit is taken.

What is the purpose of the tenancy deposit schemes?
The aim is to safeguard the tenants’ deposit and ensure that a fair return of deposit at the end of the tenancy.

The scheme provides an Alternative Dispute Resolution Service (ADR) to encourage landlords and tenants to agree when a deposit is returned to avoid common disputes regarding deposits. The scheme offers an alternative forum to court proceedings and this is designed to be a quicker and more cost effective method of resolving disputes over deposits.

Who is exempt?
• Student accommodation let directly by universities or colleges
• Resident landlords
• Company lets
• Properties where rent exceeds £25k per year

What schemes are available and how do they work?

(1) Custodial Scheme

Under this scheme the tenant pays a deposit to the landlord who then pays the deposit into the scheme within 14 days. The landlord is under an obligation to inform the tenant within 14 days of receiving the deposit that the deposit has been protected and information about the scheme; landlord’s contact details, how to apply to release the deposit, explaining the purpose of the deposit and what to do if there is a dispute about the deposit. The scheme will also confirm to the landlord and tenant once the deposit has been paid and send our information to both parties about the scheme.

The parties should agree at the end of the tenancy whether the deposit is to be reimbursed to the tenant in full or divided. If no agreement can be reached then the matter is referred to the Dispute Resolution Service for a decision. The deposit will then be paid out as agreed together with interest earned on each share depending on what is agreed or what the tenancy agreement says about interest on the deposit.

(2) Insurance-based scheme

Under this scheme, the landlord who collects the deposit retains the deposit and pays a premium to the insurer. As with the custodial scheme above, the landlord is obliged to inform the tenant within 14 days of receiving the deposit information about the scheme being used.

The parties should agree about the return of the deposit at the end of tenancy, if there is a dispute, the disputed amount is paid to the scheme until the matter is determined.

What schemes can be joined?

Deposit Protection service (The DPS)
This is the only custodial deposit protection scheme which is free of charge and open to the landlords and letting agents. The scheme is funded entirely from interest earned from the deposits held and includes the free use of the Dispute Resolution Service. You can register on line

Visit: www.depositprotection.com or call 08707 071 707

The Tenancy Deposit Scheme (The TDS)
This is an insurance based deposit protection and dispute resolution scheme which letting agents and landlords can join and continue to hold deposits.

Visit: www.tds.gb.com or call 0845 2267 837

Address: TDS Ltd, PO Box 541 Amersham HP6 9ZR

Tenancy Deposit Solutions Ltd. (TDSL)
This is an insurance based deposit protection scheme which landlords and agents can join and continue to retain deposits.

Visit: www.mydeposit.co.uk or call 08717 030 552

What happens if a tenant renews their tenancy agreement after 6 April 2007?
If the tenancy continues as a periodic tenancy and no new assured shorthold tenancy is granted then the tenancy deposit protection scheme will not apply. If however a new tenancy agreement is created for the same tenant in the same property then the tenancy protection deposit scheme will apply and the initial deposit paid at the commencement of the tenancy will need to be protected.

What are the sanctions for not complying with the deposit protection scheme?
The landlord will lose the right to serve the tenant with a Section 21 notice under the Housing Act 1988 for recovery of possession until such time as the landlord has complied with the requirements.

The tenant can also apply to the County Court for an Order requiring the landlord to refund the deposit to them or protect the deposit in a scheme.

If the deposit is not protected the landlord can be ordered to repay three times the amount of the deposit.