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Tenancy Deposits

As a savvy landlord you will no doubt be asking any tenant to pay up a deposit when they sign their tenancy agreement. What you do with this deposit is important; any cash deposit has to be protected in a Tenancy Deposit Scheme within 30 days of receipt from the tenant. The answers to these FAQs below set out what this means in practical terms and what you will need to do with your tenant’s deposit.

What is a Tenancy Deposit Protection Scheme (TDPS)?

TDPSs were created under the Housing Act 2004 and are intended to prevent a landlord from failing to return a tenant's deposit and to ensure a landlord is not left out of pocket should the tenant damage or abandon the property. TDS are compulsory for all residential assured shorthold tenancies (ASTs) created on or after 6 April 2007.

You must hold deposit funds in a TDPS even it was paid by a third party e.g. a parent paying on behalf of their child.

Can I choose how the deposit is held?

The landlord may choose between two different types of schemes:

A custodial TDPS, which requires the landlord to pay its tenant's deposit to a scheme administrator within 30 days of receipt from the tenant. The scheme administrator holds the deposit until the tenancy comes to an end. The deposit (or balance due to the tenant) is returned to the tenant.

An insurance TDPS, under which the landlord retains possession of the deposit but secures it by paying a fee and insurance premiums to the scheme administrator. The scheme administrator will use the premiums to pay the tenant should the landlord misappropriate the deposit.

How do I set up a TDPS?

There are three available schemes in England and Wales (there are separate schemes available in Scotland and Northern Ireland). The landlord must comply with the initial requirements of the TDS and give certain prescribed information.

Visit www.gov.uk/deposit-protection-schemes-and-landlords for more details of the schemes you can use.

What happens if I don’t have a TDPS?

There are potentially significant sanctions for non-compliance with the initial requirements: -

  • The landlord may be prevented from recovering possession of its property until the deposit is returned to the tenant as the landlord would not be able to validly serve the section 21 of the HA 1988 notice seeking possession which is essential to bring a tenancy to an end (ignoring procedures where the tenant is in default) and before a landlord can commence possession proceedings.

  • The landlord will be required to pay money to the tenant or relevant person by way of a penalty between 1 and 3 times the amount of the deposit should the tenant make a claim.

What happens at the end of the Tenancy?

If there are no monies to be deducted then you will both need to inform the TDPS provider you agree that the deposit is to be returned to the tenant. The deposit should then be returned to the tenant in 10 days of notification.

What happens if I want to make a deduction?

At the end of the tenancy it is a good idea to carry out a check out inspection, preferably with the tenant present. If you believe any deductions should be made you will need to gather evidence of this e.g. photos of damage caused and quotes for repairs. You will have to make an application to TDPS provider for the deductions to be applied to the deposit and submit your evidence. The tenant will be given the opportunity to respond. Once the amount to be deducted has been agreed between you and the tenant this amount will be transferred to you and the balance (if any) returned to the tenant.

What happens if there is a dispute between me and the tenant?

The TDPS providers should offer a free dispute resolution service. You will be asked to submit your claim and the evidence to support it to an independent adjudicator to assess. It is for you, as the landlord, to prove your claim against the deposit so it is important to read the advice given of the best supporting evidence you can provide. The adjudicator will make an assessment based on the evidence of the amount that you can recover.

The deposit must continue to be held in the TDPS until such time as the dispute is resolved. If you have chosen an insurance backed scheme then the deposit has to be paid into that scheme until the dispute is settled.

October 2018

Gemma Wright