Tenant Deposit Schemes

What is a tenant deposit scheme?

Tenant Deposit Schemes have been in place for assured shorthold tenancies in England from 6th April 2007. Such government-backed schemes must be used by the landlord (or letting agent) to protect the tenants’ deposit for the length of the tenancy.

Purpose of Tenant Deposit Schemes

Such schemes have been introduced to help tenants fight against landlords who try to claim all or some of the deposit at the end of the tenancy. It was noted that a fair way of settling disputes over the return of the deposit was needed and now it is in theory easier and more straightforward for tenants to resolve this issue.

Who does the scheme protect? 

The scheme applies to tenants who rent from a private landlord or letting agent, have an assured shorthold tenancy (which is the case in most tenancies) and who put down a deposit. The scheme does not apply to rent in advance but it does cover the deposit regardless of who paid it e.g. a parent for a student house.

The scheme does not protect tenants whose tenancy agreement began before 6 April 2007. If a new tenancy agreement has been drawn up since this date, it is a grey area because landlords are advised to use a tenant deposit scheme yet by law they do not have to.

What happens to the deposit?

On receiving the tenants’ deposit, the landlord or agent has two options: a custodial scheme or an insurance scheme. In the first case, the landlord pays the deposit to the scheme, which then holds it until the end of the tenancy.

In the second, the landlord may keep the actual deposit but they must pay insurance premiums into the scheme. This means that if a dispute should occur, the deposit is insured and the tenant will be paid back by the scheme. The insurance scheme may charge the landlord membership fees but both options are free to tenants.

What does the landlord or agent have to do at the start of the tenancy?

Within 14 days of the deposit payment, the landlord or letting agent must provide certain information including

  •  Their contact details

  •  The tenant deposit scheme they are going to use and their contact details

  •  Information on the purpose of the deposit

  •  Information on the return of the deposit at the end of the tenancy

  •  Information on what to do if there is a dispute

What should the tenant do if they do not receive details of the tenant deposit scheme?

If the landlord or agent has not provided the tenant with the above information and has not protected the deposit within 14 days, the tenant should apply to the county court. They will order that the landlord or agent either puts the deposit in one of the schemes or pays it back to the tenant.

Only if the landlord or agent has not protected the deposit may the landlord or agent be fined by the county court. In this situation the landlord may have to pay the tenant compensation equivalent to three times the amount of the deposit.

Additionally, if the landlord or agent has not protected the deposit and supplied the correct information within 14 days then they cannot use the ‘shorthold ground’ to evict the tenants. So they are unable to evict tenants supplying no reason but giving minimum two months notice and getting a court order, as the landlords do.

What should the tenant do at the start of the tenancy?

The tenant should first ensure that they receive the above information from the landlord. In order to aid their case in the event of a dispute, tenants should always draw up a detailed inventory of the property. Include furniture, appliances and any damage to the property as you found it. The tenant could also take digital photographs of the property with the date recorded.

Throughout the tenancy, it is worth keeping a record of payments such as rent or bills either simply writing them down or even keeping receipts.

What happens to the deposit at the end of the tenancy?

If the tenant and the landlord are in agreement over the amount of deposit that will be returned, the tenant should receive this amount within ten days of this decision. If the deposit was in a custodial scheme, the scheme will pay the tenants back directly either by cheque or bank transfer and the tenants will receive some interest.

If the deposit was in an insurance scheme, the landlord will repay the tenants by cheque, cash or bank transfer but the tenants will not receive any interest.

What should the tenant do if there is a dispute?

The landlord can only deduct certain costs from the tenants’ deposit and this does not include normal wear and tear. It is up to them to show how they will have to spend money because of the tenants’ actions during the tenancy e.g. paying to repair damage. If the tenant owes rent this is an example of the landlord losing out financially and reasonable grounds for keeping some of the deposit. If the tenant requests it, the landlord should be able to show a detailed breakdown of the costs for which they will use the deposit money.  

The tenant deposit scheme that the landlord has chosen will offer a free service to resolve disputes so get in touch with the scheme if you disagree with the amount of deposit the landlord has held onto. This service is the alternate dispute resolution service (ADR) and if both the landlord and the tenant agree to use it, they cannot then apply to the courts if dissatisfied with the result. If the ADR service is not used for whatever reason then the dispute will normally go to the county court.