Tenancy deposit protection schemes

If you're a landlord or a tenant, it's important for you to know how the tenant's deposit should be handled. Get the lowdown with our guide, then why not let Gocompare.com help you find the right deal for landlord insurance and/or tenants' insurance?

What is a tenancy deposit protection scheme?

Tenancy deposit protection (TDP) schemes guarantee that tenants will get their deposits back at the end of their tenancy, providing they've met the terms of their rental agreements and have not left the property in a poor condition.

The law says that landlords who let a property on an assured shorthold tenancy which started on, or after, 6 April, 2007, must put their tenant's deposit into a TDP.

Failure to do so could mean a court forces the landlord to repay the deposit in full, plus an additional amount - up to three times the amount of the deposit.

What schemes are available?

The landlord can choose which scheme to use. The three main ones are:

Landlord
  • Deposit Protection Service (DPS)
  • My Deposits
  • Tenancy Deposit Scheme (TDS)

There are many other schemes available, but only these three are protected in law. Other schemes will not offer the same level of protection for either landlords or tenants.

Within these three approved schemes, there are two types of scheme: custodial and insurance.

Custodial TDP schemes

Only the Deposit Protection Service offers a custodial scheme. Here, the deposit is held in a bank account by the DPS (which cannot be accessed by the landlord or the tenant), and is released to the appropriate party at the end of the tenancy.

This service is free for landlords to use, and is the only scheme that landlords based overseas may use.

Insurance TDP schemes

Here, the landlord or their agent holds on to the tenant's deposit but pays a fee to insure it against being kept unfairly at the end of the tenancy.

If there is a dispute between the landlord and tenant at the end of the tenancy the insurer will settle with the tenant and then pursue the landlord for the money.

Landlords can only use an insurance scheme if they belong to an approved professional body - such as a trade association - where members must have client money protection insurance.

What will happen when a new tenancy starts?

Once a new tenancy agreement is signed, the landlord must put the tenant's deposit into a protection scheme and within 30 days notify the tenants of the following:

House
  • The contact details of the landlord or agent
  • The contact details of the chosen deposit protection scheme
  • Information explaining the purpose of the deposit
  • How to apply for the release of the deposit
  • What to do if there is a dispute about the deposit

If after 30 days the tenant hasn't received this information, they should contact the landlord to obtain it.

If the landlord has failed to put the money into a protection scheme the tenant can take them to court to force them to either repay the deposit or pay it into a protection scheme, plus - potentially - a further sum up to three times the amount of the deposit.

Extra measures to consider

Deposit protection schemes do not require an inventory - a record of the condition of the property at the start of the tenancy - to be produced, but it can be helpful to draw one up anyway, as they may help in the event of a dispute at the end of a tenancy.

It is customary (but not a legal requirement) for landlords to provide tenants with an inventory.

Tenants should be told how much deposit to expect within 10 days of the end of the tenancy

Tenants should make sure they agree with the inventory's terms, if this is the case, and make amendments where necessary.

If an inventory from the landlord is not forthcoming, tenants would be wise to produce their own photographic records and send a copy to the landlord.

At the end of a tenancy

At the end of a tenancy the landlord must tell the protection scheme they're using how much of the deposit - if not all of it - to release to the tenants.

This is usually paid directly into the tenant's bank account. Tenants should be told how much deposit to expect within 10 days of the end of the tenancy.

The landlord might choose to withhold a portion of the deposit to cover the cost of repairs or breakages during the tenancy.

Any part of the deposit kept back will remain protected in the scheme until the tenants agree to the decision, or, if they do not, until the dispute is settled through a dispute resolution service or the courts.

Resolving a dispute

If both parties - the landlord and the tenant(s) - are unable to agree on how much deposit should be returned, they have the right to use a dispute resolution service (DRS), provided by the deposit protection scheme.

Tenants'

Both parties make their case to the DRS (using photographic evidence if necessary), which will consider each side's argument and make a final decision.

This decision is binding, unless one party decides to take the matter to court.

If one party objects to using the DRS, the situation cannot be adjudicated and the matter will have to go to court unless the two parties can come to an agreement themselves.

If either party wishes to take the matter to court the deposit protection scheme will advise on the appropriate course of action.

Gocompare.com for landlords and tenants

Remember that - as well as our regular home insurance quotes service - you can use Gocompare.com to compare quotes and find the right deals on landlord insurance and tenants' insurance.

Landlords may also want to consider some of our more specialist products, such as unoccupied home insurance, holiday home insurance or business insurance.

Depending on your circumstances, tenants may also want to consider student insurance or gadget insurance, and we can also help landlords and/or tenants with mortgages.

By Rachel England