Tenancy Deposit Protection Schemes - Rules

If you are a landlord it is vital that you are aware of the requirement that all deposits taken by landlords and letting agents for Assured Shorthold Tenancies (AST) in England and Wales must be protected by a tenancy deposit protection scheme.

There are two types of tenancy deposit protection scheme available for landlords and letting agents. These are insurance-based schemes and custodial schemes. All schemes provide a free dispute resolution service.

Landlords must be a member of one of the schemes currently in existence. Within 30 days of receiving the deposit, the landlord must provide the tenant with details of how the deposit is being protected including:

• the contact details of the tenancy deposit scheme;
• the landlord’s or agent’s contact details;
• how to apply for the release of the deposit;
• information explaining the purpose of the deposit; and
• what to do if there is a dispute about the deposit.

If a landlord or letting agent does not protect a tenant’s deposit then they will have to pay them a minum of the amount of the deposit and a maximum of three times the deposit sum in compensation.

The requirement to belong to a tenancy deposit scheme operates to the benefit of both landlords and tenants. From the landlord’s perspective, where damage is done to their property, the scheme allows the appropriate amount to be deducted from the tenant’s deposit as compensation. It is important, however, to make sure that an inventory is carried out at the beginning of the tenancy and once the tenancy is concluded, otherwise there is no proof of the damage claimed and the adjudicator is likely to find in favour of the tenant.

From the tenant’s perspective, the scheme protects them against the actions of unscrupulous landlords by making sure that part or all of their deposit is returned to them, depending on the circumstances.

It is important for landlords to understand that a tenancy which commenced before April 2007 and expires after that date will, if allowed simply to continue, create a new AST and any deposit held by the landlord will have to be treated in the same way as a deposit under a new tenancy.

In 2012, following a series of cases which significantly diluted the impact of the previous system, tenancy deposit law was significantly changed by way of the Localism Act 2011, making it more important for landlords to ensure they comply or risk significant penalties.

In 2015, important changes were introduced in the Deregulation Act 2015 which apply in all instances where a statutory periodic tenancy has been entered into on or after 6 April 2007 and a deposit paid.

The Tenant Fees Act 2019,came into effect on 1 June 2019,  and controls what payments a landlord or letting agent may require 'in connection with a tenancy of housing in England'. There are substantial penalties for landlords who fail to comply with the new legislation.

The most important change is that landlords will no longer be able to demand a security deposit of more than five weeks' rent if the annual rent is less than £50,000.

In addition, the Act introduced a ban on excessive charges for lost keys or security devices, late rental payments and early lease termination (unless loss to the landlord can be proven), and on premiums for the supply of services such as Internet connections.

Landlords who charge unlawful fees can have their right to repossess their properties suspended until the fees are repaid.

For further details on the types of scheme and those available, click here.

For guidance on renting generally, click here.