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Tenancy Deposit Schemes05 December 2007

For all new Assured Shorthold Tenancies Landlords must now hold any deposit they receive in an approved Tenancy Deposit Scheme.

There are two types of Scheme: a single custodial scheme and two insurance based schemes.

Custodial Scheme:

• the tenant pays the deposit to the landlord who then pays it into the scheme
• within 14 days of receiving the deposit the landlord must give the tenant the prescribed information about the scheme being used. This information relates to
i) the authorised scheme applying to the deposit,
ii) compliance by the landlord with the initial requirements of the scheme in relation to the deposit
• at the end of the tenancy if the tenant and landlord agree how the deposit is to be divided they tell the scheme administrators who return the deposit in the way agreed by the parties
• The scheme administrators must return the deposit within 10 days of them being notified how it should be distributed
• Any interest which accrues on the deposit is used to pay for the running of the scheme. Any surplus will usually be offered to the tenant, or the landlord if the tenant is not entitled to it.

Insurance based Schemes:

• the tenant pays the deposit to the landlord who keeps it and pays a premium to the insurer
• within 14 days of receiving the deposit the landlord must give the tenant the prescribed information about the scheme being use. This information relates to:
i) the authorised scheme applying to the deposit,
ii) compliance by the landlord with the initial requirements of the scheme in relation to the deposit
• at the end of the tenancy if the tenant and landlord agree how the deposit is to be divided the landlord returns the amount agreed
• if the landlord fails to comply the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it

The three schemes available are:

• The Deposit Protection Service (The DPS)
This is the only custodial protection scheme. It is free to use and open to all Landlords and Letting Agents. It is funded entirely on the interest earned on the deposits held. Landlords and Agents are able to register and make transactions online. Paper forms will also be available if required. More information is available at www.depositprotection.com or call 0870 707 1707.

• Tenancy Deposit Solutions Ltd (TDSL)
This is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance-based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits. For more information visit www.mydeposits.co.uk.

• The Tenancy Deposit Scheme (TDS)
This is an insurance-backed deposit protection and dispute resolution scheme run by the Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the letting industry. It enables landlords and letting agents to hold deposits. For more information visit www.tds.gb.com or call 0845 226 7837.

Disputes concerning the return of the deposit

If there is a dispute about the return of a deposit each scheme contains an Alternative Dispute Resolution (ADR) Service. If both the landlord and tenant agree to use the ADR service they will be bound by its decision with no recourse to the courts. Alternatively if the ADR service is not used the dispute will go to court.

ADR is free of charge.

Custodial Scheme

If the custodial scheme is used and the landlord or tenant does not co-operate in order to release the deposit and the landlord and tenant do not agree to ADR or court adjudication, ADR is the default method to resolve the dispute.

The scheme will hold the disputed amount until the ADR or the court decides what is fair. The scheme administrator will then divide the disputed amount according to the decision reached.

Insurance-based Schemes

In the insurance-based schemes, if the landlord is contactable by the scheme but refuses to co-operate in terms of choosing ADR or court adjudication it will be mandatory for the case to be referred to the scheme’s ADR service.

The landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved. The scheme administrator will then divide the disputed amount according to the decision reached.

If the landlord fails to transfer the amount to the scheme the scheme will pay the amount due to the tenant and recover the money from the landlord.

Consequences of not complying with the requirements

If a deposit has been paid by the tenant but the landlord is not holding it in accordance with one of the schemes, the landlord will be unable to serve notice requiring possession of the property under section 21 of the Housing Act 1988 until the legislation is complied with.

If the initial requirements of an authorised scheme have not been complied with, or the tenant has not received confirmation from the provider of the scheme the landlord indicated applied to the deposit, the tenant can apply to the courts for an order requiring the landlord to return the deposit or place it in an authorised scheme.

If you would like to speak to a member of our conveyancing team please visit the Buying and Selling your Home section of this website for contact details.

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