What is a Tenancy Deposit Scheme?
Tenancy Deposit Schemes were a scheme introduced by the Government in order to offer protection against deposits paid by a Tenant to the Landlord.
A Tenancy Deposit Scheme is maintained by scheme administrators. In England and Wales, a deposit can be registered with any of the following:-
- Deposit Protection Service
- Tenancy Deposit Scheme
There are two types of Tenancy Deposit Schemes; a Custodial Tenancy Deposit Scheme, and an Insurance Tenancy Deposit Scheme. It is up to the Landlord to decide which Tenancy Deposit Scheme to proceed with.
Insurance Tenancy Deposit Scheme
An Insurance Tenancy Deposit Scheme involves the Landlord retaining the deposit; however, the Landlord will then have to pay insurance premiums to the scheme administrator. If the Landlord dishonestly takes, or withholds the deposit, the scheme administrator will then be able to reimburse the Tenant from the premiums that the Landlord has paid.
Custodial Tenancy Deposit Scheme
A Custodial Tenancy Deposit Scheme involves the Landlord paying the scheme administrator the deposit within 30 days of having received it from the Tenant. The scheme administrator will then hold the deposit until the tenancy ends. Once the tenancy has ended, the scheme administrator will return the deposit to the Tenant as long as there are no disputes, no damage to the property, no breaches to the tenancy agreement, and no rent arrears.
When must a deposit be protected by a Tenancy Deposit Scheme?
Any deposit provided by the Tenant to the Landlord in relation to an Assured Shorthold Tenancy which started after 6 April 2007 must be protected by a Tenancy Deposit Scheme.
The Landlord must also protect a deposit that has been provided by a third party on a Tenant’s behalf (i.e. a parent).
What if the Landlord does not protect the deposit in a Tenancy Deposit Scheme?
The Landlord must ensure that the deposit is protected in a Tenancy Deposit Scheme within 30 days after having received the deposit from the Tenant. The Landlord must then also confirm to the Tenant where the deposit is protected, the amount of the deposit which has been received and protected, and how and when the deposit will be returned to the Tenant.
If the Landlord has not protected the deposit, the Tenant is able to take the Landlord to Court. The Court can order the Landlord to pay the deposit into a Tenancy Deposit Scheme, and to pay the Tenant between one and three times the amount of the deposit as compensation.
If the tenancy ended after 6 April 2012, the Tenant could still take the Landlord to court to claim back the deposit. Tenants are usually unable to claim back deposits in connection with any tenancies that ended before this date.
If the Landlord has failed to protect the deposit in a Tenancy Deposit Scheme, or has failed to disclose the information of where the deposit is being protected to the Tenant, the Landlord may find it difficult to evict the Tenant by using a Section 21 Notice.
How do I know if the deposit is protected in a Tenancy Deposit Scheme?
Deposit Protection Service, MyDeposits, and Tenancy Deposit Scheme each have a website where you can check whether the deposit is protected under a Tenancy Deposit Scheme. You will be required to enter a number of details, including your name, deposit amount, tenancy address, and tenancy start date.
When does the Tenancy Deposit Scheme return the deposit to the Tenant?
Once a deposit is protected by a Tenancy Deposit Scheme, the deposit will be returned to the Tenant at the end of the assured shorthold tenancy, unless the Landlord has a legitimate claim (e.g. If the Tenant has breached the terms of their tenancy, has failed to make payments such as rent, or has damaged the property).
Once the Tenant and Landlord have agreed how much of the deposit should be returned to the Tenant, the agreed amount will be returned to the Tenant within 10 days.
What are the benefits of having your deposit protected by a Tenancy Deposit Scheme?
In the event of a dispute, a Tenancy Deposit Scheme encourages the Tenant and the Landlord to settle the dispute via Alternative Dispute Resolution. If successful, this means that neither party have to issue court proceedings, saving both parties money and time. It should be noted, that once the Tenant and Landlord have agreed to use Alternative Dispute Resolution, then the decision will be binding.
Prior to Tenancy Deposit Schemes, some Landlords unlawfully withheld the deposit from the Tenant at the end of the tenancy. To reclaim the deposit, the Tenant would have to consider taking legal action against the Landlord which could be time consuming and costly. A Tenancy Deposit Scheme ensures that the decision as to whether the deposit is returned to the Tenant, or whether the Landlord keeps a certain amount of the deposit, is decided fairly. This guarantees that each party receives what they are entitled to.
For more information on tenancy deposit schemes, contact Burnetts here.