Renting a property from a landlord usually requires a tenancy deposit as a guarantee that you won’t cause any damage to the property. The government-backed scheme protects the deposit money of private renters. Throughout this guide, you will learn all about deposit protection and how to keep your money safe.
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An explanation of a tenancy deposit
A tenancy deposit is required by all assured short hold tenancies (AST) in order to protect the landlord and his property against substandard tenants. Tenancy bonds are sums of money that act as a guarantee in case the tenant goes into arrears, damages the property, leaves unpaid bills, or does something else that causes a financial loss for the landlord.
In most cases, the tenancy agreement stipulates a deposit that is equivalent to one or two months of rent. The amount of the deposit may be subject to special requirements in some special tenancy contracts or high-end luxurious properties.
Holding deposits that tenants put up to keep the property unoccupied convert automatically into tenancy deposits.
In June of 2019, a new regulation limiting the maximum size of tenancy deposits or holding deposits for assured short hold tenancies comes into effect. Tenant Fees Act 2019 will cap security deposits at 5 weeks’ worth of rent – if the rent is less than £50,000. The above-average value of a property is capped at 6 weeks’ worth of rent. All holding deposits are also limited to one week’s rent.
An explanation of a tenancy deposit
In the past, landlords were responsible for collecting the deposit money and deciding how much to deduct. When one party dominates the matter more than the other, the law is clearly unfair.
Tenancy deposit protection (TDP) was introduced into the Housing Act of 2004 on April 6th, 2007. A new regulation required that security deposits be protected in a government-approved agency for tenancies signed after the same date.
As mediators between the landlord and tenant regarding the rental deposit, tenancy deposit protection agencies are called tenancy deposit protection scheme.
How do tenancy deposit protection schemes work?
Companies approved by the government protect tenancy deposits. These boards supervise deposit returns, deductions, and disputes related to tenancy deposits.
TDP schemes have a few very important roles to play:
- It is important to protect and regulate tenancy deposits
- Deposit information should be provided to both landlords and tenants
- In charge of ensuring the return of deposits
- Deduct the deposits from your account
- If a dispute arises over a deposit, provide judgement
- Maintaining impartiality and objectivity
- A landlord and tenant are both responsible for securing and enforcing deposit rights and responsibilities
As part of an assured short hold tenancy, there is a tenancy deposit required at the beginning of the agreement. In the event the landlord is notified of this, he or she has 30 days to pick one of the three government-backed companies and protect the property with them. Furthermore, the landlord must provide the tenant with necessary information.
Various types of TDP schemes that exists
Due to the need to be as flexible as possible, deposit protection companies offer two types of schemes, so that the landlord may work comfortably with the tenancy deposit. In both cases, the tenant’s rights are fully guaranteed, and their money is rightfully returned at the end of the tenancy.
Custodial scheme
Both the landlord and tenant have the right to request the money to be repaid when the tenancy ends. A dispute will remain with the scheme until both parties agree on a resolution, or an alternative dispute resolution service is used, or a court order is obtained by any of the parties.
There is usually no charge for this type of deposit protection. It is common to use the interest earned on the money to pay for the administration and management fees of the scheme.
Insurance based scheme
Deposit money is kept in a bank account by the landlord or letting agent under an insurance-based scheme. A premium must be paid to the tenancy deposit protection scheme before the above listed can hold the money.
Until the tenancy ends, the landlord or agent can do whatever they like with the money. Then, the tenant is responsible for paying it back. Rent is directly transferred to the tenant if the landlord and tenant reach an agreement on deductions.
In the event of a dispute over the deposit, the amount not disputed is refunded to the tenant, while the remainder is transferred to the deposit scheme. In some ways, the scheme automatically becomes custodial when there is a dispute. There is no resolution to the disputed money until a court order is presented or a resolution is agreed upon.
Unless the landlord returns the money as they should, the scheme will refund the tenant’s money in full and deal with the landlord on their own accord.
There is usually no charge for this type of deposit protection. It is common to use the interest earned on the money to pay for the administration and management fees of the scheme.
Government-authorized schemes that protect tenancy deposits
My Deposits / Capita
Hamilton Fraser Insurance and the National Landlords Association partner to offer My Deposits. The scheme offers deposit protection based on insurance. The deposits are kept in the accounts of the landlord and the agent, who benefit from interest and other benefits accumulated from these funds.
The deposit amount agreed upon with the tenant is guaranteed by My Deposits.
Up to September 2013, Capita Tenancy Deposit Service provided a deposit protection service, which has since been discontinued. Since then, all active deposits have been moved to My Deposits. Ensure your Capita protection has been transferred properly with My Deposits if you have been covered with Capita.
Tenancy Deposit Scheme
Deposit protection is provided only by the Dispute Service, which is a not-for-profit organization. Landlords and estate agents can keep money in return for a fee that covers administration costs as long as they are insured.
As with My Deposits, you must register your account in order to protect your deposits.
Deposit Protection Service
There is only one company that provides custodial deposit protection. That company provides the service free of charge. It is likely that your deposit is protected by the DPS if you rent from a small time landlord.
Additionally, landlords and estate agents can operate with insurance-based schemes through deposit protection.
A description of how the deposit protection process works
Depending on the specific deposit protection service chosen by the landlord, there might be slight differences in operation, so be sure to check with the correct scheme and learn how it works. In any case, they all operate along the following lines:
Tenants are required to pay a tenancy deposit to their landlords when they sign a short hold lease. According to the contract, it is usually equal to one or two months of rent.
After receiving the payment, the landlord must submit it to their chosen tenancy deposit protection scheme. The landlord must also provide prescribed information to the tenant (more below). The landlord must perform both actions within 30 days of receiving the rent.
A landlord must submit the entire amount of the deposit under a custodial scheme. As per the scheme rules, the landlord must only pay the registration and administration fees for an insurance-based scheme.
To make sure the protection is properly implemented within the given period of 30 days, tenants must check with their landlord and the scheme they choose. In that case, they should contact their landlord and ask them to protect their deposit.
They can seek legal advice if they suspect the landlord will not protect the deposit (more below) and then file a claim for non-protection of the deposit.
The landlord must return the deposit within ten days of the end of the tenancy period if it is to be returned in full. Whenever deductions are made from a tenant’s deposit, the landlord must inform him or her and the deposit protection scheme of these deductions.
Deductions will be made at the tenant’s request, after which the money will be split and refunded to him or her. In order to counter the deductions, the tenant must reply to the claim using their own version, and if possible, with proof to dispute the deduction.
For a conflict to be resolved, the parties can either use the free alternative dispute resolution available through the chosen TDP scheme OR file a lawsuit in county court.
Regardless of which option is selected, both sides will submit their claims, documents, and proof. Judges or adjudicators will review them and come up with a decision that is final and cannot be appealed.
The deposits will then be split accordingly and refunded to both parties.
The prescribed information that landlords must provide
Renters are entitled to information regarding the deposit, tenancy, and rented property that sustains essentials and contacts. Different schemes have their own versions and templates for this document.
These are the entries you will find on each:
- The address of the rental property
- The amount you have paid as a deposit
- What safeguards are in place for deposits
- Name and contact details of TDP’s dispute resolution service and the Tenancy Deposit Protection scheme
- Your landlord’s or letting agent’s contact information
- Any third party who paid the deposit (for example, the parent) should be listed with their contact information.
- The reasons for keeping some or all of the deposit
- Applying for a refund of the deposit
- Getting in touch with the landlord after the tenancy ends can be tricky
- In the event of a dispute over a deposit, what to do
A copy of this document needs to be provided within 30 days after receiving the procedure. By failing to provide it or by providing information that is incorrect or incomplete, the landlord has not properly protected the deposit and is vulnerable in court.
Please check the document you receive for correct information and any missing details. If you have problems with your landlord, let them know so they can review and correct the mistakes.
In the event that the landlord fails to protect the deposit
It is the landlord’s responsibility to protect the deposit and provide prescribed information within 30 days of receiving it from the tenant.
Missing the deadline, doing it incorrectly, or failing to do so is irreparable. Renters who fail to protect their deposits can claim up to three times the deposit amount from a court.
In addition, tenants can receive their original deposits, or the landlord can still be ordered to undergo a protection procedure.
Furthermore, landlords who have not adequately protected their tenants’ deposits are not allowed to use Section 21 Eviction notices for evictions due to no fault of their own.
Any errors in the protection procedure must be reported to the landlord as soon as possible so they can correct them.
To ensure the safety of their deposit, tenants should check with their landlord and TDP scheme carefully. Check with each of the TDP services or seek legal assistance if you don’t know which one you are using.
Return of the deposit and deductions from the deposit at the end of the tenancy
Upon moving out and returning the keys, the tenant should write to the landlord requesting the return of the deposit.
If you request a deposit deduction plan, the landlord has 10 days to come up with a reason for each deduction. Suppose a landlord wants to deduct the deposit to offset a month’s rent arrears, they would say they did not receive a payment during the given month, along with their bank account history.
Deductions must be agreed upon by the tenant or negotiated with the landlord based on information collected during the tenancy. In the event that both parties agree on common terms, the tenancy deposit protection scheme can release the funds as agreed. Should that not be the case, the funds will be locked.
In the TDP scheme, landlords and tenants have the option of choosing alternative dispute resolution or going to small claims court. A legal professional can assist you if you decide to file a lawsuit. If you are not fully informed on how to proceed and defend your case, we recommend you do not go to court. This will only lead to lost money and time.
What is Alternative dispute resolution (ADR)
Alternative dispute resolution (ADR) is a service provided for free by any of the tenancy deposit protection schemes. Both the landlord and tenant must agree to use it, otherwise, the matter should be resolved in real court.
As soon as ADR is selected, a neutral adjudicator is assigned by the deposit protection company. He speaks with both parties and reviews their evidence.
An adjudicator will calculate a fair conclusion based on the evidence after a thorough investigation. Following that, tenant and landlord will receive a split of the deposit.
The tenant will receive the non-disputed portion of the insurance scheme immediately after any additional money is ruled in his or her favor.
Here are some documents the ADR may find useful or require:
Inventory Deposits: When deciding a deposit dispute, the inventory report is the most important document. If there is damage or lack of maintenance, it should be apparent from the move in/out inventory when the tenant moves in and out of the property. An inventory report should always be accompanied by photographs to allow for better judgement. Renters are advised to take their own photographs of questionable items and damages and to make their own inventories.
Rent payment evidence: (receipts or bank statements) – This proves that your rent has been paid regularly and on time.
Deposit receipt – This document verifies that you have paid a deposit to the landlord. After 30 days, the landlord is responsible to protect the deposit. Dates on receipts prove the legal timeframes for deposit protection.
Providing prescribed information as received – It is recommended that you provide the prescribed information document as you have received it as the landlord. It is likely that the landlord may be subject to penalties if the deposit protection document is partially correct or missing essential information.
A copy of your signed tenancy agreement – Although the law defines deposit protection regardless of whether you have signed a tenancy agreement, the contract may have information about deduction rights, and the rights and responsibilities of both parties. Deductions may have weight depending on whether or not they are fair.
The copies of any written correspondence between the tenant and landlord: This may contain important details about the tenancy and the deposit and deductions of the deposit.
Please provide any other information that you believe may be pertinent to your case or act as proof of your claim.
To come to a common decision with your landlord, you should always try to negotiate. Ensure that you’ve met your obligations as a tenant.
Make sure you do everything you can to prevent your landlord from claiming compensation from your deposit. Consider negotiating a fair deduction for refreshments and discussing the issues openly.
Disclaimer
The purpose of this article is to provide guidance. The information provided should be used for research purposes, and not as a basis for bringing legal action. No legal advice is provided by The Tenants Hub, and The Tenants Hub’s content does not establish a client-solicitor working relationship.
