Tenancy Deposit Protection

Under the Housing Act 2004, the government is required to introduce mandatory, universal tenancy deposit protection. Tenancy Deposit Protection will apply to all Assured Shorthold Tenancies in England and Wales where a deposit is taken and the landlord/agent has the option to choose whether to safeguard the deposit in a custodial or in an insurance-based scheme.

Custodial Scheme
Under the Custodial Scheme the tenant pays the deposit to the landlord or agent who then pays the deposit into the scheme. Within 14 days of receiving the deposit, the landlord or agent must register the deposit and give the tenant information about the scheme being used. 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 the interest to the tenant, or the landlord depending on the terms of the tenancy agreement. This scheme is free to landlords, agents and tenants.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord/agent will inform the scheme, which will return the deposit, divided in the way agreed by both parties. However, if there is a dispute, the scheme will hold the amount until the Dispute Resolution Service or courts decide what is fair. The deposit must be returned within 10 days of the end of the tenancy provided the landlord and tenant have agreed the amount.
For more information please visit www.depositprotection.com

Insurance Based Deposit Schemes:
Under the insurance based deposit scheme the tenant pays the deposit to the landlord or agent who retains the deposit and any interest earned on the deposit subject to the terms of the tenancy agreement and pays a premium to the insurer. Currently, the cost of using this scheme will be borne by the landlord or agent in terms of an annual fee. As with the custodial scheme within 14 days of receiving a deposit, the landlord/agent must register the deposit and give the tenant information about the scheme being used. There are to be two insurance based schemes.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord/agent returns all or some of the deposit. If there is a dispute, the landlord/agent must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved. 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.

There are 2 schemes which are required to be open to both private landlords and letting agents to join and make use of if they wish. However, there are fees involved.

1) Tenancy Deposit Solutions Ltd (TDSL) is a partnership between the National Landlords Association and Hamilton Fraser Insurance. The insurance-based tenancy deposit protection scheme is designed primarily to enable landlords to continue holding deposits. For more information, visit www.mydeposits.co.uk

2) The Tenancy Deposit Scheme (TDS) is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service. It was established in 2003 to provide dispute resolution and complaints handling for the lettings industry, including a voluntary deposit scheme for regulated agents. It is designed primarily to enable letting agents to continue holding deposits, but landlords can also join the scheme. For more information, visit http://www.thedisputeservice.co.uk

Alternative Dispute Resolution Service:
To avoid disputes having to go to the courts, both schemes will be supported by an Alternative Dispute Resolution (ADR) service - although the use of this will not be compulsory. A dispute at the end of the tenancy can be referred to the ADR service provided both parties agree to be bound by the ADR decision. If either party does not agree to use the ADR service, the option of referring the dispute to the courts will remain. The ADR service will be impartial and evidence based.

In the custodial scheme, where a landlord or tenant does not co-operate to release the deposit, for example, by not agreeing to the release of full or part of the deposit and do not agree to resolve the dispute through ADR or a court action, then ADR will be the default way in which to resolve a dispute.
In the insurance-based scheme, where the landlord is in contact with the scheme but is refusing to co-operate with the scheme in terms of choosing ADR or the courts, it will be mandatory for the case to be referred to the scheme for resolution through its ADR service. The same would not seem to apply to a tenant.

Failure to comply
If a landlord fails to comply with the new legislation by not protecting the tenant’s deposit (i.e. by not safeguarding the deposit and providing the prescribed information to the tenant within 14 days of the landlord receiving the deposit), he/she is unable to regain possession of the property using the usual Section 21 notice.
Tenants can apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to them 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 order being made, to repay the deposit or order the landlord to pay the deposit to the custodial scheme administrator.
In addition, 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.

Birmingham Property Letting are members of The Dispute Service (TDS) which enables us to hold deposits under the terms of this scheme on behalf of our landlords. It guarantees protection of the deposit and a fair, independent and expert assessment and settlement of any disputes over its return at the end of a tenancy.

Back