Tenancy Deposit Scheme

The Tenancy Deposit Protection applies to all assured shorthold tenancies in England and Wales where a deposit is taken. Virtually all new contracts to let a property are assured shorthold tenancies.

Tenancy Deposit Protection has been introduced:
1. 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.
2. 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.

Landlords will be able to choose between two types of scheme: a single custodial scheme and two insurance-based schemes. With an insurance-based scheme:

• a. The tenant pays the deposit to the landlord
• b. The landlord retains the deposit and pays a premium to the insurer (this is the main difference between this and a custodial scheme)

Within 14 days of receiving the deposit from the tenant, the landlord (or agent) must inform the tenant how their deposit is protected. The details must include:

• a. The contact details of the chosen tenancy deposit scheme
• b. The contact details of the landlord (or agent)
• c. The methods for applying for the release of the deposit
• d. An explanation of the purpose of the deposit
• e. The steps to take if there is a dispute about the deposit

Then, at the end of the tenancy, one of three things will happen:

1. If an agreement is reached about how much deposit should be returned, the landlord (or agent) will return the agreed amount
2. If there is a dispute, the landlord must deliver the amount in dispute to the scheme for safekeeping until the dispute is resolved
3. If the landlord fails to comply for any reason with repayment or delivery of the sum to the scheme, the insurance arrangements will ensure the tenant receives the portion of the deposit to which they are entitled

There are two insurance-based schemes:

• a. Tenancy Deposit Solutions Ltd (TDSL) - a partnership between the National Landlords Association and Hamilton Fraser Insurance.
• b. The Tenancy Deposit Scheme (TDS) - an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service.

With a custodial scheme:

• a. The tenant pays the deposit to the landlord (or agent)
• b. The landlord (or agent) then pays the deposit into the scheme

Within 14 days of receiving the tenant's deposit, the landlord (or agent) must inform the tenant how their deposit is protected. The details must include:

• a. The contact details of the chosen tenancy deposit scheme
• b. The contact details of the landlord (or agent)
• c. The methods for applying for the release of the deposit
• d. An explanation of the purpose of the deposit
• d. The steps to take if there is a dispute about the deposit

Then, at the end of the tenancy, there are two options:

1. If an agreement is reached about how much deposit should be returned, the scheme will return the deposit, allocated to landlord and tenant as agreed
2. If there is a dispute, the scheme will hold the deposit until the dispute resolution service or courts make their decision

It is worth noting that any interest accrued by deposits in the custodial scheme will be used to pay for its running. At the end of the tenancy, any surplus will be offered to the tenant, or, when the tenant isn't entitled to it, to the landlord.

The Deposit Protection Service (The DPS) is the only custodial deposit protection scheme. It is free to use and open to all landlords and letting agents. The service is funded entirely from the interest earned from deposits held. Online transactions are available to landlords and agents who register, although paper forms are also be available if internet access is difficult. The scheme is supported by a dedicated call centre and an independent dispute resolution service.

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