A GUIDE TO RENTING PROPERTY IN THE PRIVATE SECTOR
TENANCY DEPOSIT PROTECTION SCHEMES
What are Tenancy Deposit Protection Schemes?
Tenancy Deposit Protection Schemes were introduced through the Housing
Act 2004, to enable tenants to get all or part of their deposit back from their
landlord or letting agent providing they are entitled to it.
All landlords and letting agents renting property under an Assured Shorthold
Tenancy in England and Wales are required by law to hold deposits under a
Tenancy Deposit Protection Scheme.
The Tenancy Deposit Protection Scheme ensures that all landlords and letting
agents treat their tenants fairly, and when entitled to the tenant receives their
deposit back at the end of the tenancy.
The Housing Act defines a tenancy deposit as:
‘...any money intended to be held (by the landlord or otherwise) as security
for:
a) the performance of any obligations of the tenant; or
b) the discharge of any liability of his;
arising under or in connection with the tenancy'.
If a landlord or letting agent receives any money from a tenant, which is not
for a rent payment, even if it is not referred to as a ‘deposit’, the money has to
be registered with a Tenancy Deposit Protection Scheme.
Why have Tenancy Deposit Protection Schemes been introduced?
Tenancy Deposit Protection Schemes were introduced from 6 April 2007, to
make it easier for tenants to claim back their deposit.
There are two types of Tenancy Deposit Protection Scheme used by landlords
and letting agents, either an Insurance Based Scheme or a Custodial
Scheme.
Both types of Tenancy Deposit Protection Scheme have a service which deals
with any deposit disputes, to avoid such matters going to the courts.
What type of tenancy requires the use of a Tenancy Deposit Protection
Scheme?
With all Assured Shorthold Tenancy agreements the landlord or letting agent
is required to pay the deposit from the tenant into a Tenancy Deposit
Protection Scheme.
Assured Tenancies and company lettings are not covered by the Tenancy
Deposit Protection Scheme.
Who manages Tenancy Deposit Protection Schemes?
On the 22 November 2006, the government decided on three service
providers to run Tenancy Deposit Protection Schemes.
Custodial Protection Scheme
The Deposit Protection Service (The DPS)
Insurance Based Protection Schemes
My Deposits (Run by Tenancy Deposit Solutions Ltd)
The Tenancy Deposit Scheme (Run by The Dispute Service)
All three service providers are accessible to all letting agents and landlords.
The schemes all offer an Alternative Dispute Resolution Service in case of
any disputes in relation to refunding deposits.
What are Insurance Based Schemes?
This type of Tenancy Deposit Protection Scheme requires the tenant to pay
the deposit to the landlord. The landlord then registers the tenancy and
deposit amount with the Insurance Based Scheme.
The landlord is required to give the tenant details of the Insurance Scheme
which they have registered the deposit with. The landlord retains the deposit
for the duration of the tenancy. The Insurance Based Scheme provides the
tenant with the security of being able to receive the deposit back at the end of
the tenancy, provided they are entitled to it.
Is there a fee for an Insurance Based Scheme?
There is a cost for the landlord to join and Insurance Based Scheme and the
fee is set by the particular scheme chosen.
When does a tenant receive their deposit back?
At the end of the tenancy if there are no disputes over the amount of deposit
to be refunded the tenant will receive the deposit back. If both the landlord
and tenant agree that the deposit is to be returned it must be returned to the
tenant within ten days.
If there is a dispute, the disputed amount will be held until the dispute is
settled.
What is a Custodial Scheme?
Custodial Protection Schemes require the tenant to pay the deposit to the
landlord and the landlord to then pay this amount into the Custodial Scheme.
The landlord must pay the deposit into the Custodial Scheme within fourteen
days of receiving it from the tenant. The landlord is also required to give the
tenant the details of the Custodial Scheme which the deposit has been paid
into.
How are Custodial Schemes paid for?
Custodial Schemes are free for both landlords and tenants to use. The
interest as a result of holding deposits during tenancies pays for the running
costs of Custodial Schemes.
When does a tenant receive their deposit back?
When the tenancy agreement has ended, provided the landlord and tenant
agree on the amount of deposit to be refunded the Custodial Scheme will
refund the money. A proportion of the interest accumulated on the deposit
whilst it was held by the scheme will also be paid to the tenant.
If there is a dispute the disputed amount will be held until the dispute is
settled.
When is a tenant protected by the Tenancy Deposit Protection Scheme?
If a tenancy began on or after 6 April 2007 and was let on an Assured
Shorthold Tenancy the tenant is entitled to have their deposit protected
through the Tenancy Deposit Protection Scheme.
At the start of an Assured Shorthold Tenancy the landlord is required to give
the tenant details of the Tenancy Deposit Protection Scheme. The tenant then
has the right to contact the company and check that the landlord has
registered the deposit into either an Insurance Based or Custodial Scheme.
What information should the tenant and landlord have on the Tenancy
Deposit Protection Scheme?
The Housing Act 2004 places a requirement on the landlord to provide the
tenant with information about how their deposit is being protected, within
fourteen days of receipt of the deposit.
The scheme that the landlord registers the deposit with will provide them with
information, which should then be passed on to the tenant.
The scheme must provide the landlord with:
The name, address and contact details of the scheme provider
The name, address and contact details of the Alternative Dispute
Resolution Service
Details of the procedures for applying for the return of the deposit
Procedures if the landlord and tenant are not contactable at the end of
the tenancy
A standard information leaflet explaining how the deposit is protected
by the Housing Act 2004
What if a landlord fails to provide the tenant with information on the
Tenancy Deposit Protection Scheme?
When accepting a deposit the landlord or letting agent is required to ensure:
The deposit is protected by one of the three government backed
Tenancy Deposit Protection schemes,
They follow the rules of the Tenancy Deposit Protection Scheme which
they have registered with.
The tenant is provided with information within fourteen days of the
deposit being received.
Failure to comply with any of above may lead to the landlord facing court
action and being unable to repose the property, under Section 21 of the
Housing Act.
The tenant has the right to seek compensation if the landlord does not provide
them with information about the Tenancy Deposit Protection Scheme used.
The compensation for the tenant is equivalent to three times that of the
deposit.
What happens if a deposit dispute occurs?
Both the Insurance Based and Custodial Schemes provide details of an
Alternative Dispute Resolution Service (ADR).
Any disputes over the deposit can be refereed to the ADR service provided
both the landlord and tenant agree to use this service to settle the dispute.
Once the ADR makes a decision about the deposit this is binding and neither
the tenant nor landlord can take the dispute to the courts. If the tenant or
landlord does not wish to use the ADR service then the dispute is resolved
through the courts.
Who holds the deposit when a dispute is in the process of being
settled?
Insurance Based Schemes
If the deposit was registered with an Insurance Based Scheme, the landlord
will not be able to hold all of the deposit whilst the dispute is being resolved.
The undisputed amount can be returned to the tenant and the landlord can
keep the remaining undisputed amount. However, the disputed amount is
required to be put into the Insurance Based Scheme. Only when the ADR
service or the court has reached a decision on how the deposit should be
dealt with will the scheme refund the deposit based on the decision made.
The deposit should be returned within ten days of the decision being made by
the ADR service or the courts.
Custodial Schemes
The disputed deposit amount will remain in the Custodial Protection Scheme,
whilst the remaining undisputed amount can be retuned to both tenant and
landlord. If both the tenant and landlord agree to use the ADR service
provided by the Custodial Scheme, then the dispute can be resolved in this
way. If there is a disagreement about using the service then the dispute can
be taken to the courts. When the ODR service or courts have made a decision
on the deposit dispute the amounts can be refunded accordingly by the
Custodial Protection Scheme.
What happens when a landlord doesn’t enter into a Tenancy Deposit
Protection Scheme?
The tenant has the right to apply for details of the Tenancy Deposit Protection
Scheme the landlord has submitted their deposit to. If the landlord has failed
to register the tenancy deposit with one of the Tenancy Deposit Protection
Schemes, the tenant may apply for a court order.
If the court agrees that the landlord has failed to pay the deposit into a
Tenancy Deposit Protection Scheme they may either require the landlord to
repay the deposit to the tenant, within fourteen days, or to pay the deposit into
a Tenancy Deposit Protection Scheme.
The court will also order that the landlord pays the tenant (or person who paid
the deposit on behalf of the tenant) an amount equal to three times the initial
deposit amount, within fourteen days.
What if a tenant moves out of the property and their deposit has not
been protected?
It is advised that tenants check at the start of the tenancy to see if their
deposit has been protected by a Tenancy Deposit Protection Scheme.
If the tenant moves out of the property and realises after that their landlord
had not protected their deposit through a Protection Scheme, the tenant can
apply for a court order to ensure the landlord repays the deposit.
What happens when the tenant or landlord cannot contact the other
party to arrange for the deposit to be refunded?
If for some reason the tenant or landlord has lost the contact details and are
unaware of the whereabouts of the other party, then they can apply to the
Tenancy Deposit Protection Scheme for the deposit to be refunded.
The claim must be accomplished by information on the individual’s attempts to
contact the other party and whether or not they would agree to using the
Alternative Dispute Resolution Service if the other party was contactable and
disputed the claim.
Are there alternatives to accepting a deposit?
The Housing Act 2004 does not recommend or require landlords or letting
agents to accept a deposit, should they prefer to use an alternative.
Guarantors
A landlord may prefer to have a guarantor instead of a deposit, when
letting out a property. By having a guarantor, the landlord ensures that if
the tenant is unable to meet rent payments or other requirements of the
tenancy agreement, the guarantor will do so.
It is essential that the landlord conducts the necessary credit checks
and obtains references on the guarantor to ensure they are suitable and
able to make financial payments if required. If a landlord decides to use
a guarantor rather than taking a deposit, it is important that the
agreement is comprehensive and binding. Often landlords and letting
agents only accept guarantors who own their own property, so in the
case of missed payments, a legal charge can be registered against the
guarantor’s property.
Guarantors can resign from the agreement but must give a set period of
notice. When using a guarantor the fixed term should be for the same
length of time as the guarantee term. Once the fixed term comes to an
end, it is possible to find another guarantor to cover the next fixed term
of the tenancy agreement.
Insurance
There are private companies who issue insurance policies for landlords
renting private property. Insurance can be taken out to cover missed
rent payments and tenants who fail to abide by the terms of the tenancy
agreement.