What is Tenancy Deposit Protection & who does it apply to? |
Introduced under Part 6 of the Housing Act 2004, Tenancy Deposit Protection became law from the 6th April 2007 and all landlords in England or Wales renting out property under an assured short hold tenancy (AST) will have to sign up to the scheme and abide by its regulations. Designed to safeguard tenants' money, the new scheme hopes to put an end to the protracted wrangling between landlords and tenants through a new alternative dispute resolution (ADR) service. As the resolution of disputes is based on evidence, an independent, comprehensive inventory will be a pre-requisite to a referral to the Alternative Dispute Resolution (ADR) service
There will be a legal obligation for landlords who take a deposit to join one of three schemes which have been awarded contracts by the government, which are explained below:
The Deposit Protection Service (The DPS) |
This is the sole Custodial scheme - the running costs of this scheme are funded entirely from the interest earned on all the deposits held by the scheme. The Custodial scheme is run by Computershare who have administered similar schemes for some years in other parts of the world, particularly Australia and New Zealand.
The tenant will pay the deposit to the landlord/agent as now. But, and here’s the difference from the insurance-backed scheme, the landlord/agent will then pay the deposit into the custodial scheme. At the end of the tenancy if the landlord/agent and tenant agree how the deposit should be apportioned, they will tell the scheme, which will refund the deposit money as agreed.
In the event of a dispute under the custodial scheme, the deposit will of course already be held by the custodial scheme administrator from commencement of the tenancy. If the landlord/agent cannot agree to the apportionment of the deposit, the disputed amount will remain in the scheme. Any undisputed amount will be returned to the parties as appropriate. The two parties will then agree to use the custodial scheme’s ADR service or either of them can exercise their option of taking the matter to court.
The scheme will subsequently apportion the disputed amount in accordance with the ADR service’s, or court’s, decision.
The tenant should receive their money back within 10 days of the scheme being provided with evidence of agreement between landlord/agent and tenant or, where there is a dispute, the scheme being provided with the ADR service’s, or court’s, decision.
For more information visit the website www.depositprotection.com
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 the website www.mydeposits.co.uk/
The Tenancy Deposit Scheme (TDS) |
This is an Insurance-based scheme run by an organisation called The Dispute Service and was established back in 2003 to provide independent dispute resolution and complaints handling for the lettings industry. It has been running a voluntary tenancy deposit scheme for use by regulated agents since that time and is backed by the three professional bodies for letting agents in the residential property sector, ARLA, NAEA and RICS.
For more information visit the website www.tds.gb.com or call 0845 226 7837
In the event of a dispute under the insurance-backed schemes, what happens to the deposit?
If there is an end of tenancy dispute and the tenancy deposit is safeguarded by an insurance-backed scheme, your landlord/agent will not be able to hold all of it while the dispute is settled. Instead, the landlord/agent will be required to transfer to the scheme the amount of the deposit that is in dispute. Then, agreement can either be reached to use the scheme’s ADR service or in the absence of mutual agreement, the dispute will go to court. The scheme will subsequently apportion and refund the disputed amount in accordance with the ADR service’s, or the court’s, decision.
For example, say the original deposit was £1000. At the end of the tenancy the landlord/agent states that he intends to retain £200 to pay for replacing damaged furniture and £50 as a contribution towards cleaning. The tenant accepts the cleaning charge but the tenant disagrees about the furniture claiming that the furniture was already damaged when the tenancy commenced. Clearly the remainder £750 (of the £1000 deposit) is not in dispute and belongs to the tenant and should be returned to him/her. The agreed charge of £50 can be retained by the landlord/agent and the remainder, the disputed amount of £200, will then be transferred to the scheme administrator until the dispute is settled either by the ADR or the courts.
What happens if the landlord/agent fails to transfer the disputed amount into the insurance-backed schemes when the dispute is raised? |
The scheme itself will pay the tenant any of the disputed amount due to him as a result of the ADR service’s or court’s decision. The scheme will then take action against the landlord/agent to recover the outstanding money.
When does a tenant get their money back? |
The tenant should receive their money back within 10 days of the tenant requesting that the landlord return their deposit, or in the case of a dispute, within 10 days of the scheme being notified of the ADR service’s or court’s decision.
Can the deposit be paid back before the statutory timescales - i.e. on the last day of the tenancy? |
Yes. The 10 days referred to is a maximum. For example, where a tenancy is protected under the insurance-backed scheme and there is no disagreement between the parties about any apportionment or deductions the deposit can be dealt with more quickly because it will be held by the landlord/agent.
| Penalties for avoidance. |
Until the deposit has been safeguarded by one of the schemes, the landlord/agent is unable to regain possession of the property using the usual “notice only” ground for possession (section 21).
Tenants will be able to check to see whether their landlord has protected their deposit in one of the schemes.
If they haven't done so within 14 days, the tenant can apply for a court order forcing the landlord to place the deposit under the protection of one of the schemes and/or requiring the landlord to provide the tenant with the prescribed information about the location of the deposit e.g. the scheme details.Where the court is satisfied that the landlord/agent has failed to comply with the requirements and the deposit is not being held in accordance with an authorised scheme the court must either:
· Make an order requiring, that within 14 days, the deposit amount is repaid to the tenant.
· Order the landlord to pay the deposit amount into the designated account held by the custodial scheme administrator. The court must also order the landlord/agent to pay, within 14 days, to the tenant (or person who paid the deposit on her/his behalf) an amount equivalent to three times the deposit amount.
Food for thought…quotes from leading industry figures on TDS
Mike Stimpson, Chair, National Federation of Residential Landlords (NFRL), said:
"Good landlords do not support landlords who break the law. We encourage landlords to make sure they are aware of the legal requirements of tenancy deposit protection."
"We all want to encourage best practice renting - with good inventories and agreements on the condition that a house should be in when a lease ends."
Spending just a little time at the beginning of a lease on agreeing the basics can stop most problems with deposits occurring in the first place."
"If there is no decent inventory, landlords can't expect to withhold the deposit. Equally tenants who damage a property or leave it in a filthy condition mustn't expect to get their deposit back."
For the insurance-backed scheme: within 10 days of the tenant requesting that the landlord return the deposit, or, where there is a dispute, within 10 days of the scheme being provided with the ADR service’s, or court’s, decision.