A Landlord’s Guide to Deposit Protection Schemes

When you are embarking on becoming a landlord, something you need to know about inside out is deposit protection. Here we answer the most important questions on tenancy deposit protection schemes to help you understand how they work and what your legal obligations are as a landlord when it comes to taking and holding a tenant’s deposit.

The Tenant Fees Act provides that a deposit of up to five weeks’ rent must be paid to secure a tenancy agreement, and that the deposit must be placed into a government-backed tenancy deposit protection scheme within 30 days of receiving it.

A tenancy deposit protection scheme (TDP) safeguards tenants’ deposits and provide a guarantee that they will be returned, providing:

• The terms of the tenancy agreement have been met
• There has been no damage to the property
• All the rent and bills have been paid

If you have received a holding deposit from your future tenants (money to ‘hold’ a property before an agreement is signed), then you won’t need to officially protect it until the tenancy is legally agreed.

You will need to use a TDP scheme even if the deposit is paid by someone else, such as a rent deposit scheme, or a tenant’s relative.

Why does a tenant need to pay a deposit?

Deposits are paid ahead of a new tenancy starting. They are taken to cover the likes of damage to a property, any cleaning required at the end of the tenancy, and any unpaid bills.

When a tenancy comes to an end, the landlord is required to return the deposit, unless the property hasn’t been returned in the condition it was in when the tenancy began, allowing for any fair wear and tear, or any damage that the landlord would be liable to repair.

What are the government-approved tenancy deposit protection schemes?

For tenancies in England and Wales, there are three available government-approved tenancy deposit protection schemes:

1. Deposit Protection Service (DPS)
2. MyDeposits
3. Tenancy Deposit Scheme

All three schemes offer two options:

Custodial: This type of scheme involves the landlord lodging the deposit for the duration of the tenancy. It is released back to the tenant once it is agreed how much should be repaid.

Insurance: With this type of deposit protection scheme, the landlord pays a fee to have the deposit protected. If the tenant doesn’t get their deposit back, then the insurer pays them directly.

When should a landlord return their tenant’s deposit?

At the end of the tenancy, the deposit must be returned to the tenant within 10 days of both landlord and tenant agreeing how much will be returned.

What if there is a dispute over the amount of deposit to return?

Sometimes, at the end of a tenancy, there may be a dispute related to damage to the property, missing items or cleaning required. The deposit is protected by the TDP until such issues are settled. With insured schemes, you will need to turn over the deposit to the scheme, which will hold it until the issue is resolved.

DPS, one of the government-backed schemes, offers a free dispute resolution service. Both parties get to submit evidence to an independent adjudicator, who will then make a decision as to how the money should be allocated.

What are a landlord’s obligations in regards to tenancy deposit protection schemes?

Within 30 days of receiving a deposit, landlords must confirm the following to the tenants:

• The address of the rented property
• The deposit amount paid
• How the deposit has been protected
• The name and contact details of the tenancy deposit protection scheme and its dispute resolution service
• The landlord or letting agent’s name and contact details
• The name and contact details of any third party who paid the deposit
• Any reasons you may have to retain the deposit in full or in part, e.g. to cover damage repairs or cleaning at the end of the tenancy
• How the tenant may apply to claim the deposit back at the end of the tenancy
• What the tenant can do if they cannot contact you at the end of the tenancy
• What to do in the case of a dispute over the amount of deposit to be returned at the end of the tenancy

What happens if a tenant’s deposit is not protected?

In cases where a tenancy deposit protection scheme is not used where it should be, tenants are within their rights to apply to a county court at any point during the tenancy.

If the court finds that you have not protected the deposit when you should have, they can order you to repay it to your tenants, or pay it into a custodial TDP scheme’s account within 14 days.

The court may in addition order you to repay your tenants up to three times their original deposit within 14 days of making the order. It may also be the case that the court decides that, at the end of the tenancy, your tenants do not have to leave the property if you did not use a TDP scheme when you should have.

Want to hand over your landlord legal obligations?

Dealing with tenancy deposit protection schemes is just one of many legal responsibilities landlords must contend with.

If you’d prefer to take more of a back seat with your property investment, why not hand over your property management to homes2let, and take advantage of our guaranteed rent scheme into the bargain?

Not only will we handle the entire legal side of your property rental, including placing the tenant’s deposit in a government-approved scheme, we’ll also take care of all the day to day maintenance, property inspections and tenant sourcing, as well guaranteeing your rent every month, even when the property isn’t tenanted.

To discover how we can streamline your life as a buy to let property investor, you are welcome to get in touch with our expert team.