Deposit protection: a guide to what landlords must do with tenants' deposits

A landlord will (almost) always request that a tenant provides a deposit before entering into an assured shorthold tenancy agreement (AST). This deposit acts as a form of security for the landlord. If, for instance the property is damaged during the tenancy, or, there are rental arrears, the landlord may make a withdrawal (against the deposit).

Since 2007, there have been obligations imposed on a landlord to ensure that the deposit is protected and not misused during the tenancy. These obligations can often be burdensome (especially to a novice landlord), and, failure to comply can result in significant penalties for the landlord.

Landlords must be aware of their rights and obligations in relation to the deposit.

Since 6th April 2007, it has been mandatory for any landlord, who receives money from a tenant, in the form of a deposit, to join a ‘tenancy deposit scheme’.

There are 2 different types of schemes and it is for the landlord to choose which one to use. These are:

1. a custodial tenancy deposit scheme
2. an insurance based tenancy deposit scheme.

A CTDS requires a landlord to pay its tenant’s deposit to the scheme administrator within 14 days of its receipt. The landlord does not retain possession of the deposit- it is held by the administrator for the duration of the tenancy. At the end of the tenancy, the deposit is returned to the tenant, paid to the landlord or split between them depending upon the particular circumstances of the tenancy.

Any interest earned on the deposit will either be retained by the administrator or paid out (as accrued interest) to the landlord and/ or tenant (depending on the terms of the tenancy agreement).

An ITDS allows the landlord to retain possession of the deposit, providing that he/she pays (to the scheme administrator) a service fee and insurance premiums.

The administrator will use these premiums to repay the tenant should the landlord misappropriate the deposit.

The landlord must provide the tenant (or any other person who has paid the deposit on behalf of the tenant) with ‘prescribed information’. This information must be provided within 30 days of receiving the deposit and failure to do so can have significant consequences for both tenant and landlord.

The prescribed information includes;

• Name, address and the telephone number of the scheme administrator of the ATDS.
• Any important information contained in documentation supplied by the scheme administrator
• The procedures that apply under the chosen scheme to the payment/repayment of the deposit to the landlord/tenant at the end of the tenancy.
• The procedures that apply under the chosen scheme where the landlord/tenant dispute the amount (of the deposit) to be paid to the landlord/repaid to the tenant.

There are significant penalties for non-compliance.

If a landlord fails to join a deposit scheme, or, does not provide the tenant with the prescribed information within 30 days of receiving their deposit, they may face either (or both) of the following sanctions;

• The landlord may be prevented from recovering possession of its property, and/ or
• The landlord may be required to pay the tenant (or relevant person), by way of a fine, an amount equal to three times the amount of the deposit.

There are a number of additional sanctions, which apply to a breach of the requirements under an ITDS, including:

• The landlord being required to pay the deposit as the scheme administrator directs,
• The deposit being removed from the scheme,
• The landlord no longer being allowed to be a member of the scheme,
• The deposit, being repaid to the tenant and the scheme administrator recovering these funds from the landlord
• If the Landlord fails to comply with the TDS, then the Tenant can apply to the court even when the tenancy has ended.

At Linder Myers LLP we have a dedicated property team, experienced in landlord and tenant matters. We are able to give practical advise to landlords as to their obligations under an AST, including their responsibilities relating to any deposit taken.

What happens if my landlord does not comply with the deposit protection regulations? Click the text to find out more.