Tenancy deposit protection

The powers to bring in tenancy deposit schemes are contained in ss.212-215 of the Housing Act 2004. The aims of the provisions are to safeguard a tenant's deposit in the event that their landlord may wish to wrongly withhold all or part of it, and to provide for alternative dispute resolution in the event that a landlord and tenant cannot agree on the amount of the deposit to be repaid or retained at the end of a tenancy. There are significant penalties for landlords who do not conform to the new requirements under this legislation.

Tenancy deposit protection had been a subject of consultation and discussion by government for some years prior to the 2004 Act. The government finally expressed its intention not to legislate in this area, and when the Act was introduced into parliament it contained no provisions on this subject. The tenancy deposit provisions were introduced by amendment at short notice and without consultation following lobbying by parts of the advice sector.

Tenancy deposit protection provisions came into force on 6 April 2007. 

Key features

Tenancy deposit protection in England and Wales add to the measures already brought in to drive up standards in the private rented sector set out in Housing Act 2004. Those measures include the licensing multiple occupancy homes and the housing health and safety rating system, which replaces the old fitness standard. 
 
Tenancy deposit protection apply to all assured shorthold tenancies in England and Wales, where a deposit is taken.
 
There are two main aims:

• To ensure good practice in deposit handling, so that when a tenant pays a deposit, and is entitled to get it back, they can be assured that this will happen.
  
• To assist with the resolution of disputes by having an alternative dispute resolution (ADR) service. It will also encourage tenants and landlords to have in place, from the outset, clear agreement on the condition of the property through best practice, such as the use of inventories, and agreement on the condition of the property.  

Tenancy deposit protection in summary

Landlords are required to join a statutory tenancy deposit scheme, if they take deposits. Failure to comply means incurring a fine of three times the deposit levied. Tenants get all or part of their deposit back, if they have kept the property in good condition and are entitled to get their deposit back. The scheme offers alternative ways of resolving disputes which aim to be faster and cheaper than taking court action.

Key elements of the proposals 

Landlords are able to choose between two types of scheme: a single custodial scheme and one or more insurance-based schemes.
 
Insurance-based schemes: 

• The tenant pays the deposit to the landlord.
• The landlord retains the deposit and pays a premium to the insurer.
• Within 14 days of receiving a deposit, the landlord must give the tenant information about the scheme being used.
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord will return all or some of the deposit.
• If there is a dispute, the landlord must hand over the disputed amount for safekeeping until the dispute is resolved.
• If for any reason the landlord fails to comply the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Example: a tenant pays a deposit of £1000. At the end of the tenancy, the landlord says he wishes to keep £200 to pay for replacing damaged furniture. The remaining £800 will be returned to the tenant. The tenant disagrees, claiming the furniture was damaged when they moved in. Both agree to go to ADR, so the disputed £200 will be transferred to the scheme administrator until the dispute is settled.

Custodial scheme

• The tenant pays the deposit to the landlord.
• The landlord then pays the deposit into the scheme – the key difference to the insurance scheme.
• Within 14 days of receiving a deposit, the landlord must give the tenant information about the scheme being used.
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties.
• If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair.
• The interest accrued by deposits in the scheme will be used to pay for the scheme and any surplus will be used to offer interest to the tenant or landlord if the tenant is not’t entitled to it.

In each scheme, the deposit must be returned within 10 days of the end of the tenancy provided the landlord and tenant have agreed the amount.

More information can be found on the DCLG website or from rob.thomas@cml.org.uk.