As of the 2007 amendments to the Housing Act, as a landlord, you are responsible for putting your tenant’s deposit into a Tenancy Deposit Protection scheme within 30 days of the start of the tenancy.
What is Tenancy Deposit Protection?
A landlord letting their property on an Assured Shorthold Tenancy in England and Wales must use a deposit protection scheme. Tenancy Deposit Protection involves a third-party, one of three government approved schemes, safeguarding the deposit until the end of the tenancy. At the end of the tenancy the money is released providing all the conditions of the tenancy are met and both parties have agreed on the amount to be returned. If there is a dispute, it is handled by the scheme’s dispute resolution service and will award a judgement once the evidence has been gathered.
Why was it implemented?
The legal requirement was introduced in an attempt to minimise disputes at the end of a tenancy and ensure fair treatment to all tenants. Rather than one party deciding how much of the deposit to withhold for any damages, the third party seeks to resolve disputes fairly, with the agreement of both the landlord and tenant.
It benefits both landlords and tenants
While the benefits are clear for the tenants, safeguarding their deposits ensures that landlords cannot withhold their deposits unfairly or overcharge for small damages and wear and tear, there are also considerable benefits to landlords.
By law, any Tenancy Deposit Protection scheme must have a free resolution centre. Prior to deposit protection becoming a legal requirement, disputes between landlords and tenants at the end of a tenancy could end up in the courts with both sides incurring legal fees. Access to a free and impartial dispute resolution service also saves on legal fees for the landlords in the event of a dispute occurring.
There are two types of deposit protection schemes
Custodial schemes, involve the landlord putting all of the deposit into the scheme. At the end of the tenancy, the scheme will get the agreement of both the landlord and the tenant for the amount to be returned to each party and will arrange the payment of the amounts agreed to both the landlord and the tenant.
Insurance-based schemes, work slightly differently. The landlord can keep the deposit, but pays an insurance premium to the deposit protection scheme provider. Once the tenancy is finished, if the landlord and tenant agree on the amount to be returned, the landlord can return it to the tenant themselves. However, if there is a dispute, the landlord must place the disputed amount into the scheme until the circumstances are investigated and the scheme provider makes a judgement on who will receive what amount.
Landlords are free to use either type of scheme, but the important thing is that they do use one. If you as the landlord do not provide the tenant all the relevant information on your chosen Tenancy Deposit Protection scheme provider in writing, within 30 days of them paying you the deposit, your tenant can take you to court.