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Tenancy Deposit Protection Schemes

Tenancy Deposit Protection (TDP) schemes guarantee that tenants will get their deposits back at the end of the tenancy, if they meet the terms of the tenancy agreement and do not damage the property.

Landlords must protect their tenants' deposits using a TDP scheme if they have let the property on an assured shorthold tenancy (AST) which started after 6 April 2007.

If these conditions don't apply - for example, because you live in the property with your tenant - you do not have to protect your tenants' deposits. However, it is still good practice to do so.

 
Landlords or agents must use one of the three approved TDP schemes to protect tenants' deposits where these conditions apply. If any other scheme is used, deposits are not protected in law. The three approved schemes are: -

  • Deposit Protection Service (DPS)
  • MyDeposits
  • Tenancy Deposit Scheme (TDS)


If you don't protect your tenants' deposits when required to, your tenants can take you to court and you may have to repay them their deposit plus three times the amount of their deposit. You will also be unable to seek possession of your property in certain circumstances.


Protecting deposits by student tenants


If your tenants are students, you must protect their deposits using a TDP scheme if: -

  • they have an assured shorthold tenancy
  • you received their full deposits on or after 6 April 2007


You must protect students' or any other tenants' deposits even if they were paid by someone else - for example, their parents.

Protecting deposits made by a third party


If a tenant's deposit is paid by someone else - eg through a rent deposit scheme - you still must use a TDP scheme.


You should ask the tenant and third party what relationship they are to each other and find out how much the third party wants to be involved in the process. For example, the deposit scheme administrator needs to know if the third party wants the deposit returned directly to them.

Choosing a TDP scheme


There are two types of TDP schemes - custodial and insurance-based. Any landlord can use the custodial scheme but there are some restrictions on who can use the insurance-based schemes.


Tenants can expect a decision as to how much of their deposit is going to be returned to them within ten days from the end of the tenancy. Any part of the deposit kept back at this stage will remain protected in the scheme being used until such time as any dispute is resolved. The exact arrangements depend on the type of scheme used.

Custodial scheme


The Deposit Protection Service (DPS) provides the only custodial TDP scheme.


Under this scheme the Deposit Protection Service holds the deposit money in a bank account. When the tenancy ends, it releases the deposit to the person who is entitled to it.


If you are a landlord based overseas, you must use the custodial DPS scheme, unless you employ a UK-registered letting agent to manage your tenancy.


If you use DPS for tenants using a rent deposit scheme (for example, a council pays the deposit) and your tenant leaves, you can agree with the council or third party to keep the deposit in place for the next tenant.

Insurance-based schemes


Under insurance-based schemes, the landlord or the landlord's agent holds the tenant's deposit and pays a fee to insure it (against the landlord illegally keeping the deposit. If the landlord doesn't pay the tenant the amount they are owed at the end of the tenancy, the insurer will pay the tenant and try to get the money back from the landlord.
If your tenants' deposits are paid in installments as part of a rent deposit scheme, you must use an insurance-based TDP scheme.

The only two insurance-based providers are: -

  • MyDeposits
  • Tenancy Deposit Scheme (TDS)

You can only use the TDS if you belong to an approved professional body - like a trade association - where members must have client money protection insurance. This insurance ensures that any client money held by a business is protected, even if the person or company goes out of business. Examples of approved bodies under TDS include the: -

  • Association of Residential Letting Agents
  • Royal Institution of Chartered Surveyors
  • National Association of Estate Agents
  • National Approved Letting Scheme

Costs of using a TDP scheme


There is no charge for landlords or letting agents to use the custodial DPS. The insurance-based schemes MyDeposits and the TDS charge fees for membership and you will also have to pay insurance premiums.

Getting the information you need about the TDP scheme provider


Landlords should find out the following details from their TDP scheme provider: -

  • name and contact details of the scheme
  • contact details for the scheme's dispute resolution service
  • how to apply for the deposit's release
  • what to do if the landlord or tenant can't be contacted at the end of the tenancy
  • how the deposit is protected


Within 14 days of receiving their tenants' deposits, landlords must give this information to their tenants, together with the: -

  • the address of the rented property and the amount of deposit paid
  • the landlord's or letting agency's name and contact details
  • the name and contact details of any third party that has paid the deposit
  • items or services covered by the deposit
  • the circumstances under which the landlord will be able to retain some or all of the deposit
  • what to do if there is a dispute over how much deposit should be returned

If your letting agent manages deposits and goes out of business


Landlords are responsible for making sure the deposit is kept safe with one of the schemes even if they use a letting agent to look after the deposit.


The scheme provider will expect you as landlord to pay it back any money it has to pay to the tenant if it is unable to get the money from the managing agent. You should therefore consider what arrangements your agent has made to keep tenants’ money separate and available even if it goes out of business.

Date of Article: 1st November 2010

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This domain is owned by Warr & Co Chartered Accountants which is a member of the Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Peter Edwards on 0161 477 6789 or email us at info@warr.co.uk

 

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