The Tenancy Deposit Scheme Regulations 2006 affect landlords and tenants. This article explains primarily for a landlord. The Regulations affect only assured shorthold agreements.
The Regulations came into effect on 6 April 2007. After that date, any deposit up to the level of £100,000 taken by a landlord or a letting agent must be protected by a tenancy deposit protection scheme. The new tenancy deposit law gives this protection to a tenant to prevent a landlord or letting agent from unfairly withholding a tenant’s deposit. The scheme protects all Assured Shorthold Tenancies in England and Wales. Similar provisions apply in Scotland and in Northern Ireland.
The essence of the scheme is to compel a landlord to hand over a deposit to an authorised third party or to arrange for insurance cover against which a tenant may claim.
Any deposit protection scheme provider must hold a Government contract in order to operate.
The options for a landlord to comply with the scheme are:
- Deposit Protection Service (DPS)
- Tenancy Deposit Scheme (TDS)
- MyDeposit
- Deposit Protection Service (Insured scheme)
Deposit Protection Service offers both a custodial scheme and insurance. The other three offer only the insured option.
It is very important that a landlord does not put a deposit into any scheme that is not authorised by Government. There have been bogus web sites over the last few years and landlords have been caught out.
The schemes operate as follows
Deposit Protection Service
It is a Custodial deposit protection scheme which is open for all e.g. landlords, letting agents and organisations. It will safeguard the deposit throughout the tenancy and repay the appropriate parties when the tenancy is over. All the deposit funds are held in accordance with Financial Services Authority and the client money regulations and will be managed by Computershare Investor Services Plc..
Tenancy Deposit Scheme
The tenancy deposit scheme is operated by the Dispute Service Ltd, a non profit company which provides insurance backed tenancy deposit protection as set out in the Housing Act 2004.The scheme allows a landlord or his agent to hold a deposit himself during the tenancy period. The scheme also provides free, impartial dispute resolution by accredited Adjudicators in case there is a dispute over the deposit.
Deposit Protection Service Insured
Deposit protection service now offer an insurance backed deposit protection service. The scheme was established under the Housing Act 2004. Participation in an insured scheme allows the landlord or letting agent to hold the deposit in their own bank account for the duration of the tenancy but if there is a dispute at the end, the disputed amount must be transferred to the scheme and it becomes a custodial scheme. Landlords must pay a premium to the insured scheme to be allowed to hold on to the deposit.
My Deposits
My Deposit is a Non-Custodial tenancy deposit protection scheme operated by Tenancy Deposit Solutions Limited and appointed by Communities and Local Government. My Deposits operates as an insurance backed deposit protection service. At the start of each new contractual fixed term Assured Shorthold Tenancy a new Protection must be purchased.
More information about legislation related to Tenancy Deposit Protection and the various schemes that are Government approved can be found at Tenancy deposit protection.
Landlord Safe guards
The scheme acts only to enforce the right of a tenant to have his deposit back fast when he is entitled to it. A landlord remains perfectly able make a deductions for damage.
In case of a dispute the third party or insurance company will act as the arbitrator and pay out money owed to tenants.
Of course, it may happen that the landlord’s costs of insurance scheme membership and the premium may be passed on indirectly to tenants by means of increased rents.
Key to the success of the scheme will be the preparation and agreement of a full and detailed inventory of the property and contents at the commencement of the tenancy.
Avoid this pitfall
An issue that has come to light recently is that one of the schemes (Tenancy Deposit Scheme) changed its rules in January 2012. As a result, a deposit must be “re-protected” when a fixed term ends and the tenancy rolls over into a statutory periodic tenancy. If the landlord fails to do so, the deposit will no longer be protected and the landlord will have broken the law. The penalties for this are severe. A court may award the tenant up to 400% of the deposit as compensation.
Other schemes may ask the landlords to update the record to show that the tenancy has continued beyond the fixed term and no new contract has been put into place, these schemes may not issue a new certificate and will continue to protect the deposit until it is unprotected. Their request for an update is for administrative purposes only.