Tenancy Deposit Protection Schemes

by Mark Johnston

Most landlords and letting agents ask tenants for a deposit as security against damage to the property or non-payment of rent.

Tenancy deposit protection (TDP) schemes ensure that money paid by tenants as a deposit is protected.

Landlords are responsible for making sure that deposits are kept safe with a scheme even if they use a letting agent to look after the deposit.

Theses schemes guarantee that tenants will get their deposits back at the end of their tenancies, providing of course they have met all the terms of the tenancy agreement and they have not damaged the property.

Landlords or letting agents must use one of three approved tenancy deposit protection schemes (TDP) to protect the deposits, theses include:

–          deposit protection service (DPS)

–          mydeposits

–          tenancy deposit scheme (TDS)

These schemes were introduced to encourage landlords to draw up clear tenancy agreements and also to provide a free service to resolve any disputes.

There are 2 types of tenancy deposit protection schemes, custodial and insurance based and landlords are free to choose which particular scheme they use. However, there are some restrictions on who can use the insurance based scheme.

Custodial scheme: under this scheme the deposit protection service holds the deposit money in a bank account until the tenancy ends it releases the deposit to the person who is entitled to it.

Insurance based scheme: under this scheme either the landlord or the landlord’s agent holds the deposit and then pays a fee to insure it. Therefore if the landlord does not pay the fee at the end of the tenancy the insurer will and then reclaims it from the landlord. However, this scheme can only be used by members of an approved professional body.

Shelter, the housing charity has stated that there are currently around 1.7 million people living in the private rental sector. A survey that they conducted in to this sector showed that around 30% of deposits returned were ‘in part’ or not at all’.

The National Landlords Association (NLA) is now reminding landlords that they will face tougher penalties if they fail to put their tenant’s deposits into a government approved scheme. Changes such as this have come in to force after changes to the Localism Act 2011which are affective from April 2012.

There is an estimated £1 billion held by landlords in the UK and the system was widely open to abuse by unscrupulous landlords, however this is all set to change.

The government has now closed holes in the tenancy deposit protection schemes which after appeal allowed landlords to protect the deposit late or in some cases not at all. Under these new rules landlords are now given no longer than 30 days, which is up from 14 days, to protect a tenant’s deposit.

Chris Norris, policy manager at the National Landlords Association (NLA) has said “loopholes have now been closed, so if landlords fail to comply, they need to be aware they can be taken to court”.

A court can fine a landlord between 1 to 3 times the value of the deposit if they:

– Only protect a tenants deposit after 30 days

– fail to give the tenants details of the scheme used with in 30 days

– fail to protect the deposit

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