If you let properties using Assured Shorthold Tenancies and take deposits from your tenants to cover arrears and/or damage the law says you will need to register/place any deposit money taken to cover rent arrears or damage with one of the three new tenancy deposit protection schemes .
Did you know that if you let a property using an Assured Shorthold Tenancy after April 6 2007 and do not secure the deposit through one of the new schemes brought in by the Housing Act 2004 you will lose the right to regain possession of the property using a Section 21 Notice (the standard 2 months’ ‘notice only’ ground), and could face a hefty financial penalty? If you’re not fully up to speed on this then read on
What is Tenancy Deposit Protection(TDP)?
TDP is a new legal requirement applying to all Assured Shorthold tenancies – the vast majority of tenancies – granted after 6 April 2007. It does not affect tenancies granted before that date which are continuing.
The Housing Act 2004 states that when a deposit is taken, it can no longer be held solely by the landlord, and must be safeguarded by a statutory scheme. There are two types of scheme – insurance–based and custodial, and they are backed by an alternative dispute resolution (ADR) service to avoid costly court proceedings when landlord and tenant cannot agree about the return of the deposit.
Why has it been brought in?
The aims of the scheme are:
- To protect tenants’ deposits
- To enable disputes to be settled quickly and cheaply
- To raise standards in the private rented sector for both landlords and tenants
Many landlords will testify to problem tenants, and one of the benefits of the scheme is that it is in the best interests of the tenant to leave the property in good condition, and under the scheme there is no reason to withhold their last month’s rent.
There are a minority of landlords who unfairly withhold deposits, or fail to carry out and agree an inventory or condition survey with their tenants, which can lead to confusion and conflict at the end of the tenancy. TDP encourages good practice in this area.
What are the different schemes?
There will be two insurance based schemes and one custodial scheme, all backed by an alternative dispute resolution service (ADR).
Insurance-based schemes:
1. The Tenancy Deposit Scheme (run by the Dispute Service Ltd – an organisation established in 2003 to provide dispute resolution and complaints handling for the letting industry)
2. Tenancy Deposit Solutions Ltd (partnership between the National Landlord’s Association and Hamilton Fraser Insurance)
The landlord or letting agent retains the deposit and pays a fee to join one of the above schemes for insurance to cover any misappropriation of deposit.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns some or all of the deposit within 10 days of this agreement
Custodial scheme
1. Deposit Protection Services (funded entirely from interest earned from deposits held by the scheme )
- Landlord pays deposit into the scheme
- All deposits held in central ‘pot’
- At the end of the tenancy, if there is no dispute, scheme releases deposit to tenant
- Open to all and free to use by landlords/agents
- As with insurance-based schemes, deposit is paid back within 10 days
What if there is a dispute?
If you and your tenant cannot agree how the deposit should be divided when the tenancy ends, each scheme has a dispute resolution service:
Insurance-based schemes
- Landlord/agent must pass that part of the deposit which is disputed to the scheme to hold
- The amount in dispute is released to the tenant or landlord following the decision of the ADR service (or court)
- ADR service is free to use for landlords and tenants
- If it is decided by the ADR or court, the scheme pays the tenant the agreed amount even if the landlord has not placed it with the scheme, then seeks to recover the sum from the landlord.
Custodial scheme
- Custodial scheme holds all the deposit during period of dispute
- Scheme releases relevant proportions of the deposit to tenant and landlord once ADR has reached a decision
For both types of scheme disputes will only go to court if the landlord and tenant do not agree to use the ADR service.
What will happen if I don’t use one of the TDP schemes?
a) You will be unable to regain possession of the tenanted property using the ‘notice only’ ground
Currently a landlord can gain an order for possession of an Assured Shorthold Tenancy (AST) at any point after the fixed term (minimum 6 months) by giving the tenant 2 months’ notice in writing under section 21 of the Housing Act 1988. However, under TDP if the deposit has not been safeguarded and the prescribed information passed to the tenant within 14 days, you will not be able to use this ground.
b) Payment to the tenant
Tenants can apply for a court order requiring the deposit to be safeguarded or the prescribed information passed to them. Where the court believes the landlord has failed to comply with these requirements, or the deposit is not being held in an authorised scheme, the court must either order the landlord to pay the deposit into the custodial scheme, or repay the deposit. The court must also order the landlord to pay the tenant three times the deposit amount within 14 days of the making of the order.
What are the timescales I must adhere to?
- The deposit must be protected and information passed to the tenant about which scheme the deposit is held under within 14 days of the deposit being taken
- At the end of the tenancy the money must be returned to the tenant within 10 days of the agreement regarding how the money will be divided, whether this has been resolved by mutual agreement or through the ADR service or court.
I need to know more, what do I do?
You can contact the CLG direct for more information:
Communities & Local Government’s Tenancy Deposit Protection Team
Tel: 020 7944 4400
Email: tenancy.deposits@communities.gsi.gov.uk
Or find out more from the scheme providers:
The Deposit Protection Service
www.depositprotection.co.uk
Tenancy Deposit Solutions
www.mydeposits.co.uk
The Tenancy Deposit Scheme
www.tds.gb.com
You might also like to speak to a representative body such as a landlords’ association or an advice agency such as Shelter or your local Citizens’ Advice Bureau
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