What You Need to Know About Tenancy Deposit Schemes

When you rent a home on an assured shorthold tenancy in England and Wales, you are required to pay a tenancy deposit (usually the equivalent of a month’s rent) to your landlord to protect him against your parking out without paying your rent and bills, and to protect him against any property you may damage during your stay. The deposit is later returned to you at the end of your tenancy if no dispute arises.

The deposit protects your landlord. What if at the end of your tenancy your landlord accuses you of damage you did not inflict? What about other ugly scenarios that might come back to bite you? What protects you and your deposit?

This is where a tenancy deposit scheme, under the provisions of the UK Housing Act 2004, comes in. It became effective on 6^th April 2007 and requires your landlord or letting agent to place your tenancy deposit in a government-approved deposit scheme.

Here are the three government-approved tenancy deposit schemes:

• My Deposits: offers an insured scheme.
• Tenancy Deposit Scheme: also provides an insured scheme.
• Deposit Protection Service: offers both custodial and insured schemes.

These tenancy deposit schemes were all approved by the UK government in November 2006. They ensure that your tenancy deposit is safe and will be returned to you so long as you adhere to the conditions of your tenancy agreement and at the end of your tenancy you have settled your rent and bills and have not caused any damage to your landlord’s property.

They cannot protect your tenancy deposit if, instead of money, your landlord accepts valuable items like a television or watch as collateral.

What Type of Tenancy Deposit Scheme Should You Use?

• Insurance based scheme

In this type of tenancy deposit scheme, the tenant pays the deposit to the landlord and then the landlord indexes the tenancy and deposit amount with the insurance based scheme, but keeps the deposited money during the tenancy.

While the landlord’s retaining of the deposited amount might seem a risky for the tenant, it really is not, since the insurance based scheme offers the tenant the security that the deposit will be returned to him or her at the end of the tenancy, as long as no dispute comes up. This is why the landlord has to provide the tenant with details of the insurance scheme used to register the tenancy deposit, in case the tenant needs to verify.

Also, there is a fee for this type of tenancy deposit scheme, but it is not the responsibility of the tenant. Neither can the landlord deduct it from the tenancy deposit at the end of the tenancy. The landlord assumes full responsibility of the premium.

If a dispute doesn’t arise between the landlord and the tenant, the tenant gets the full deposit back within ten days after the end of the tenancy. If a dispute, however, rises, the amount in question will be withheld until the dispute is resolved.

• Custodial scheme

In this type of tenancy deposit scheme, the tenant also gives the deposit to the landlord, but unlike in the insurance-based scheme, the landlord deposits the amount into the custodial scheme, and he or she must do this within fourteen days of receiving the money from the tenant. The landlord must also provide the tenant with documents and details to prove he actually lodged the deposit with the scheme.

The custodial tenancy deposit scheme does not require any fee apart from the deposit. Instead, it derives its running costs from interests earned through holding full tenancy deposits.

These two types of tenancy deposit scheme both guarantee the security of the tenancy deposit. And the decision of which one to go with lies on the landlord and is not something a tenant should worry about.

Tenancy Deposit Rules

To effectively protect your tenancy deposit, there are certain regulations your landlord must adhere to. Otherwise he or she will be susceptible to compensation claims, and his power to evict you from his property will be limited.

Here are the rules and penalties:

• Your landlord must protect your tenancy deposit in a government-approved scheme.
• Your landlord must follow the regulations of the tenancy deposit protection scheme where he registered your deposit.
• Your landlord or letting agent must provide you with ‘the prescribed information’ within thirty days starting from the day you made your deposit.
• The prescribed information must entail:
  • Details on how you can get your deposit back at the end of your tenancy
  • Information about the alternative dispute resolution service
  • The scheme provider’s name, address, and contact details
  • A leaflet detailing down how the deposit is protected under the UK Housing Act 2004
  • Processes to follow if you, or your landlord, are not reachable at the end of the tenancy
• Should your landlord fail to do any of the things mentioned above:
  • Your landlord can be ordered by a court to pay compensation up to three times the value of your deposit.
  • Your landlord can’t evict you from their property, under a Section 21 notice, until they have refunded you your deposit in full.
  • Your landlord must provide you with the prescribed information before evicting you—that is if they protected your deposit but failed to give you the prescribed information.

Remember. If you paid your deposit before April 6^th, 2007, these rules do not apply to it, unless your tenancy was renewed after that date.

How Are Disputes Resovled?

Every tenancy deposit protection scheme is entitled to an alternative dispute resolution service. The service helps to settle any dispute that may arise between you and your landlord outside the court and is offered free of charge.

Also, there has to be a mutual agreement, between you and your landlord, to use the service. Otherwise, you may need to proceed to court to resolve a dispute.