Are you about to rent a property and the landlord wants a deposit? Then you need to be aware of the tenancy deposit schemes which protect your damage deposits. Tessa Shepperson, solicitor and expert in tenancy law, tells you all you need to know about the schemes and how they can look after your money.
What's the point of the schemes?
The damage deposit you hand over to your landlord when your tenancy starts will be protected from your landlord misusing it. Your landlord can put your deposit into a scheme which holds onto it until the end of your tenancy or he can pay insurance for it to be refunded should the money go missing.
If you have a dispute with your landlord over the deposit, the disagreement can be referred to independent arbitrators to resolve. This is a free service and it is far quicker and easier than going to court.
When do the schemes apply?
The rules apply to all deposits taken for Assured Shorthold Tenancies after 6 April 2007. From this date, if your landlord is taking a deposit from you for any damage to the property, he must let you know the details of which tenancy deposit scheme you are using within 14 days of receiving the deposit. Deposits taken before 6 April 2007 will only need to be protected if a new tenancy agreement is given to you after this date.
A few tenancies will not come within the scheme, such as lettings with a rent of over £25,000, resident landlords or company lets.
What are the schemes?
The landlord can choose one of three government authorised schemes and two types of scheme are available to him. They are:
1. Custodial scheme
The landlord pays the deposit money to the scheme administrators, who then pay it out to him or to you, as appropriate, at the end of the tenancy. This scheme is free of charge for him to use. There is only one custodial scheme - The Deposit Protection Service Ltd.
2. Insurance-based schemes
The landlord is allowed to hold the deposit, but he has to pay a fee. The scheme administrators take out insurance so the deposit can be refunded to you if your landlord doesn't pay back your deposit. There are two insurance-based schemes:
- The Dispute Service Ltd. The organisers of this scheme formerly ran a voluntary scheme for letting agents and this scheme is aimed mainly at agents.
- mydeposits. This scheme is owned jointly by the National Landlords' Association and Hamilton Fraser Insurance, and is aimed mainly at landlords.
What happens if you and the landlord can't agree?
If you are both disagreeing about the division of the deposit at the end of the tenancy, any undisputed element should be paid as agreed. The disputed element must then be paid to the scheme administrators for insurance-based schemes and the dispute will then be referred to arbitration. This is free of charge and the arbitrator will normally make a decision within 28 days of receiving the paperwork. The scheme administrators will pay the deposit out, as appropriate, within ten days of receiving the arbitrator's decision.
Are there penalties for the landlord not using a scheme?
If your landlord doesn't protect your deposit, you can go to court and ask for:
- The return or the deposit, or
- An order that the deposit be protected under the custodial scheme, and
- An order that your landlord pays you a sum equal to three times the deposit amount, within 14 days
Your landlord will also not be able to ask you to leave the property while the deposit is unprotected.
These schemes only apply to tenancies in England and Wales. For more information on the schemes, see the schemes' websites listed above.
Tessa Shepperson is author of Lawpack's Residential Lettings Kit and book The Complete Guide to Residential Letting, and editor of the popular online legal information service at www.landlordlaw.co.uk.
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