Tenancy deposit schemes

You're a landlord letting out property in England and Wales, but are you taking damage deposits from your tenants in case they wreck the rental property? If so, then you legally must protect your tenants' deposits using a tenancy deposit protection scheme.

There are two types of tenancy deposit scheme: either a custodial scheme or an insurance-based scheme. The government has awarded contracts to three companies to run its tenancy deposit schemes.

Tenancy deposit schemes only apply to an assured shorthold tenancy; a common law tenancy and assured tenancy are excluded.

The tenancy deposit schemes

The Deposit Protection Service (The DPS) - the only custodial tenancy deposit protection scheme - is free to use and open to all landlords and letting agents letting property. The money for the damage deposit is placed in the custody of the tenancy deposit scheme. The service is funded entirely from the interest earned from damage deposits held. Landlords and letting agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme is supported by a dedicated call centre and an independent dispute resolution service. For more information, visit www.depositprotection.com or call 0870 707 1707.
mydeposits is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance-based tenancy deposit scheme enables landlords who are letting property, either directly or through agents, to hold the damage deposit themselves. Letting agents can also join the scheme. For more information, visit www.mydeposits.co.uk or call 0871 703 0552.
The Tenancy Deposit Scheme (TDS) is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service, which builds on a scheme established in 2003, to provide dispute resolution and complaints handling for the property letting industry. The new scheme also enables letting agents and landlords to hold the deposit themselves. For more information, visit www.tds.gb.com or call 0845 226 7837.

Information to the tenant

Within 14 days of receiving your tenant's damage deposit, you (or your letting agent) are required by law to give the tenant details about how the deposit is protected including:

The contact details of the tenancy deposit scheme
Your contact details of those of your agent
How the tenant can apply for the release of the damage deposit
Information explaining the purpose of the damage deposit
What to do if there is a dispute about the damage deposit

It's important that you give your tenant the right information; otherwise you may find that you're unable to seek possession from the tenant and you may be liable to pay them a sum of money equal to three times the amount of the deposit.

The statement supplied by your tenancy deposit scheme administrator may not be sufficient, but, to make things easier, Lawpack has produced a Tenancy Deposit Protection Form (Section 213 Notice) which ensures compliance. All you have to do is fill in the details, sign it and hand it to your tenant.

Exclusions to the scheme

The law regarding tenancy deposit protection schemes doesn't apply where the tenancy is not an assured shorthold tenancy (i.e. tenancies where the rent is over £25,000 per year or where the landlord is resident in the same dwelling house as the tenant).

The tenancy deposit protection scheme is only applicable in England and Wales, but the scheme will be introduced in Scotland sometime next year.

Legislation

The law relating to tenancy deposits may be found at these links: