A Landlords Guide to Deposits

It is common practice to request a deposit from the tenant prior to them moving in to protect you from damage caused by the tenant beyond normal wear and tear, or in the case the tenant leaves without paying the rent.

It is usually equivalent to one month’s rent and is taken along with the first month’s rent and is taken along with the first month’s rent in advance.

The tenant should be provided with a receipt and a clear understanding of what the deposit is for and the conditions for its full return. You must return the money to the tenant within a reasonable period of time after the last day of the agreement if there is no damage to the property or its contents beyond normal wear and tear and if the rent payments are up to date.

If you do decide to withhold some or all of the deposit, you must notify the tenant as soon as possible in writing, stating how much money you are retaining and why. If possible, provide receipts of estimates or costs incurred to repair damage to the property.

The Tenancy Deposit Scheme

New legislation has been recently introduced to help tenants and landlords avoid and resolve disputes relating to the return and use of a tenant’s deposit. Under the legislation, if landlords fail to protect the tenant’s deposit, they may have to pay the tenant three times the value of the deposit.

The Deposit Protection Scheme is designed to make sure:

  • Tenants get all or some of their deposit back when they are entitled to it,
  • Any disputes involving landlords and tenants over the return of the deposit are easier to resolve,
  • Tenants are actively encouraged to look after the property they are renting.

Whenever a deposit is taken from a tenant as part of an Assured Shorthold Tenancy, either by a landlord directly or a managing agent, it must be protected in one of the government initiated schemes. There are two types of schemes, described as “custodial schemes” and “insurance schemes”.

Custodial Scheme

The deposit is held by the scheme for the duration of the agreement and repaid at the end of the tenancy. It is also free to use. Within 14 days of being paid the deposit the landlord must provide details to the tenant of how the deposit is being protected, including:

  • The contact details of the chosen tenancy deposit scheme,
  • The landlord details,
  • How they can apply for the return of the deposit,
  • The detail concerning the purpose of the deposit,
  • What to do if a dispute arises regarding the return of the deposit.

At the end of the tenancy, if an agreement is reached between both parties, the deposit will be divided up (if required) and returned accordingly. If a dispute arises, the scheme will hold on to the money until the Courts or the dispute resolution service solves the disagreement.

The Deposit Protection Service (DPS) is currently the only provider of the custodial scheme.

Insurance Based Schemes

As with the custodial scheme, the deposit is held by the scheme for the duration of the agreement and repaid at the end of the tenancy. However, instead of passing the deposit directly to the scheme, the landlord retains the deposit and pays an insurance premium to the scheme.

Within 14 days of being paid the deposit, the landlord must provide details to the tenant of how the deposit is protected including:

  • The contact details of the chosen tenancy deposit scheme,
  • The landlord details,
  • How they can apply for the return of the deposit,
  • The detail concerning the purpose of the deposit,
  • What to do if a dispute arises regarding the return of the deposit.

At the end of the tenancy, if an agreement has been reached by both parties, the landlord returns some or all of the deposit to the tenant. If a dispute arises, the landlord must hand over the deposit to the scheme until a resolution is reached. If a landlord fails to comply, the scheme returns the deposit to the tenant, if they are entitled to it.

There are two providers offering an insurance-based scheme, Tenancy Deposit Solutions Ltd (TDSL), The Tenancy Deposit Scheme (TDS) and MyDeposits.co.uk