Tenancy deposit schemes
From the 6th April 2007 new provisions contained in the Housing Act 2004 made it a requirement that any landlord who wishes to take a monetary deposit or bond at the start of an Assured Shorthold Tenancy, must safeguard that deposit in a Tenancy Deposit Scheme (TDS).
The aim of the new requirements is to facilitate the resolution of disputes arising in connection with bonds and deposits and remove the risk of misappropriation of tenants’ deposits by landlords and letting agents.
General requirements
A landlord will not be able to take a deposit or bond from a tenant at the start of an Assured Shorthold Tenancy unless it is covered by a Tenancy Deposit Scheme.
A landlord will have to deal with the deposit in accordance with an authorised scheme, comply with the schemes initial requirements within 14 days and give the tenant the appropriate information about the scheme within 14 days of the deposit being received.
What happens if the landlord doesn’t use a TDS?
- The landlord will not be able to regain possession using the ‘notice only’ grounds under Section 21 of the Housing Act 1988 (where a Landlord can obtain an order for possession of an assured shorthold tenancy at any point after the fixed term of the tenancy has ended by giving 2 months' notice)
- If a Landlord has failed to arrange for the deposit to be dealt with in accordance with a scheme or has not provided the tenant with details of a scheme within 14 days, that tenant can apply directly to the Court for the deposit to be paid into a custodial tenancy deposit scheme or paid directly back to them.
- Should the landlord fail to comply with the required provisions by the date of a Court hearing then the Court must make the Order as directed and also order the Landlord to pay the tenant an amount equivalent to three times the deposit within 10 days.
Types of Tenancy Deposit Scheme (TDS) available
There will be 2 types of Tenancy Deposit Scheme available for Landlords to use, a Custodial scheme and an Insurance based scheme.
- Custodial Tenancy Deposit Scheme - the tenant pays the deposit to the Landlord and then the Landlord pays the whole deposit into a designated scheme account. The money is held in that account and accrues interest at a Government determined rate, until such time as the tenancy ends. At the end of the tenancy if both the landlord and tenant agree, then the scheme will pay out either the whole deposit to one party or part of the deposit to each party in accordance with that agreement, within 10 days. If no agreement is reached, the deposit is retained until such time as a Court Order is obtained by the landlord or tenant specifying the proportion of the deposit to which each party is entitled.
- Insurance based Tenancy Deposit Scheme – The landlord is a member of the relevant scheme but retains the deposit and pays it back to the tenant at the end of the tenancy. The landlord only transfers the deposit into the scheme if there is a dispute with the tenant at the end of the tenancy, the scheme will then hold the deposit until the dispute is settled. Once the tenant and landlord reach agreement or a Court decides the amount of deposit to which each party is entitled, the Administrator will distribute the deposit amount to the relevant party, as an insurance based scheme, if the tenant is entitled to a refund of the deposit the scheme will pay the tenant regardless of whether the landlord has transferred the deposit to the scheme as required.
Alternative Dispute Resolution
All schemes (custodial and Insurance based) must make available an Alternative Dispute Resolution Service so that each party can try and resolve disputes without the need to go to Court. This service will not replace the Courts or prevent any party from taking the matter to Court but gives each party another option to try and resolve their dispute.
For further information about Tenancy Deposit Schemes see the relevant section of the Department of Communities and Local Government website
Or contact them directly by:
Helpline number: 020 7944 4400
Fax number: 020 7944 4101
Email: tenancy.deposits@communities.gsi.gov.uk
Postal address:
Communities and Local Government
Eland House
Bressenden Place
London
SW1E 5DU
