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The Tenancy Deposit Scheme is now mandatory - 01/02/2008


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Since 6 April 2007, landlords who rent properties on an assured short hold tenancy in England and Wales (where the rent per annum does not exceed 25,000) must protect the deposit they receive via a tenancy deposit protection scheme. Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme.

What are the different tenancy deposit schemes available?

The Government has awarded contracts to three companies to run its tenancy deposit schemes.

The Deposit Protection Service (The DPS)

The only custodial deposit protection scheme which is free to use and open to all landlords and letting agents. The service is funded entirely from the interest earned from deposits held. Landlords and letting agents are able to register and make transactions online. Paper forms are also available should internet access be an issue. The scheme is supported by a dedicated call centre and an independent dispute resolution service (www.depositprotection.com or call 0870 707 1707).

Tenancy Deposit Solutions Ltd (TDSL)

This is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance-based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits. Letting agents can also join the scheme (www.mydeposits.co.uk or call 0871 703 0552).

The Tenancy Deposit Scheme (TDS)

This is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the lettings industry. The new scheme enables letting agents and landlords to hold deposits (http://www.thedisputeservice.co.uk/ or call 0845 226 7837).

The landlord (and not the tenant) will decide whether to safeguard the deposit in the custodial or insurance-based scheme.

 

How will the different schemes work?

Custodial scheme

  1. The tenant pays the deposit to the landlord;
  2. The landlord then pays the deposit into the scheme;
  3. Within 14 days of receiving a deposit, the landlord must give the tenant the
    prescribed information (see below) about the scheme being used and the tenancy;
  4. At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties;
  5. If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair.

The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be used to offer interest to the tenant (or landlord if the tenant is not entitled to it).

The deposit MUST be returned (in full or part - whatever is agreed) within ten days of the scheme being notified of agreement between the landlord and tenant or notified of an Alternative Dispute Resolution (ADR) service/court decision.

 

Insurance-based schemes

  1. The tenant pays the deposit to the landlord;
  2. The landlord retains the deposit and pays a premium to the insurer - the difference from the custodial scheme;
  3. Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information (see below) about the scheme being used for the tenancy;
  4. At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit;
  5. If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved;
  6. If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

The deposit must either be paid back (in full or part - whatever is agreed) to the tenant within ten days of the tenant requesting that the landlord return his deposit or in case of a dispute within ten days of the scheme being notified of the ADR service's, or court's, decision. 

 

Prescribed information relating to tenancy deposits

The Housing (Tenancy Deposits) (Prescribed Information) Order 2007 lists the prescribed information which must be provided to tenants. A full list can be obtained from the Office of Public Sector Information on the following link:
http://www.opsi.gov.uk/si/si2007/20070797.htm#note4

In brief, the main pieces of information to provide are:

  1. The name, address, telephone number, e-mail address and any fax number of the appointed scheme administrator together with information provided by the scheme administrator which explains the operation of the provisions of the scheme;
  2. How the deposit may be paid or repaid to the tenant at the end of the tenancy and what should happen where either the landlord or the tenant is not contactable at the end of the tenancy;
  3. What should happen where the landlord and the tenant dispute the amount of deposit to be paid or repaid to the tenant and the options available under the scheme for resolving this dispute without recourse to litigation; and
  4. Information such as the amount of the deposit paid, the address of the property which is being rented to the tenant, the name, address, telephone number and any e-mail address or fax number of both the landlord and tenant.

The landlord must sign a certificate which, amongst other things, will include confirmation that the information he provides is accurate to the best of his knowledge.

 

What are the implications of failing to protect the deposit via the tenancy deposit scheme?

  1. Landlord restricted from regaining possession to a property - a landlord is unable to regain possession of the property via a Section 21 notice if the deposit has not been safeguarded and the prescribed information passed onto the tenant within 14 days of the landlord receiving it;
  2. Fine - tenants can apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to him about the scheme in which the deposit is safeguarded.

Where the court believes that the landlord has failed to comply with these requirements, or the deposit is not being held in an authorised scheme, the court must either order the landlord within 14 days of the making of the order to repay the deposit or order the landlord to pay the deposit to the custodial scheme administrator.

The court must also order the landlord to pay to the tenant a fine of three times the deposit amount within 14 days of the making of the order.

 

What happens in the event of a dispute?

Both schemes will be supported by an ADR service. However, it is a matter for agreement between the parties as to whether to use this service. When a dispute occurs, and if landlord and tenant both agree to use the service, they will also have agreed to be bound by its decision. Therefore, they will not have any recourse to the courts if ADR fails.

Disputes will only go to the courts if the landlord and tenant do not agree to use the ADR service.

In the custodial scheme, ADR will be the default way in which to resolve a dispute where a landlord or tenant fails to co-operate in order to release the deposit. This normally occurs where there is no agreement for the release of full or part of the deposit; or no agreement to resolve the dispute through ADR or court.

In the insurance-based scheme, the case must be referred to the scheme for resolution through its ADR service where the landlord is contactable by the scheme but is refusing to co-operate with the scheme in terms of choosing ADR or the courts.

 

Will the tenancy deposit scheme apply when a tenant renews their contract after 6 April 2007?

If the tenant decides to remain in their existing rented property beyond the initial fixed term of six months, how the deposit is treated will depend on how the tenancy is continued;

Periodic tenancy - i.e. the tenancy continues with no new agreement - the tenancy deposit scheme will not apply, as no new assured shorthold tenancy will have been created.

Replacement tenancy - i.e. a new assured shorthold tenancy is created between the same landlord and tenant for the same property on substantially the same basis - the tenancy deposit scheme will apply to the initial deposit that was paid prior to 6 April 2007.

 


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