The Law
All Landlords who take a deposit on an Assured Shorthold Tenancy must protect it in a Government authorised scheme within 30 days of receiving it from the tenant.
These rules apply in England and Wales; similar rules will take effect in Scotland from 2 July 2012.
The Approved Schemes
There are three approved schemes:
Deposit Protection Service (DPS)
- Free to use
- Deposits are held by the DPS, not the landlord
- Free dispute resolution service
Tenancy Deposit Scheme (TDS)
- Deposits are held by the Landlord and only sent to TDS if there is a dispute
- Fee payable for each deposit registered and at each renewal of the tenancy agreement
- Free dispute resolution service
My Deposits
- Deposits held by Landlord and only sent to My Deposits if there is a dispute
- One off joining fee plus a fee for each deposit held, payable again at each renewal of the tenancy agreement
- Free dispute resolution service
How much is the Deposit?
The law does not specify an amount. Traditionally, the deposit would be one month’s rent but it is now more common for landlords to ask for 6 weeks’ rent. This is to prevent tenants using up the entire deposit by failing to pay the last month’s rent at the end of the tenancy, leaving nothing for any damage they may have caused. Landlords need to be careful about asking for 2 months’ rent or more as this may be classed as a “premium” which could give the tenants additional rights under the tenancy agreement.
What are the Penalties for Failure to Comply?
- The landlord will be unable to obtain a Court Order for repossession if the deposit has not been protected. This means that, if tenants refuse to leave the property, the landlord will have no legal right to evict them until the deposit has either been protected under one of the authorised schemes, or returned in full to the tenants.
- A court may order the landlord to pay the tenant compensation of up to three times the amount of the deposit.
Anything Else?
Landlords must provided their tenants with information about the deposit scheme they have chosen within 30 days of receiving the deposit. The information includes details (including contact details) of the scheme used, procedures for repaying the deposit at the end of the tenancy and instructions about how any disputes will be handled. The schemes usually provide leaflets in which most of this information is contained.
Update: The requirement to provide precise details of the scheme to the tenant as set out in the legislation is treated very seriously by the courts. In the case Ayannuga v Swindells the Court of Appeal awarded the maximum penalty on a landlord for a “minor omission” in the information provided.
I’ve been a landlord, with my own 20 preiertpos, for the past 5 years now.I’ve decided not to subscribe to the tenant’s deposit scheme but to take 2 or 3 months rent in advance, which is clearly worded in my ast contracts.My reasons are:I need the working capital i.e. I need the money sitting in my bank and not the deposit scheme.You may argue that I would be exposed when the tenant comes to leave and their last month (or 2 momths) are free of rent, having paid in advance on day 1 however what Ive found is:1. Those tenants that paid their rent on time also looked after the property and left it in a good state.and2. Those tenants that did not pay on time well, I had their deposit in my bank assisting my cash flow when they did not pay and if they damaged my property then I was covered by malicious damage insurance the deposit left by a bad tenant would be swallowed up by missed rent and not go anyway to paying for the damage.The biggest exposure for a landlord is not being paid so I advice that you take out rent insurance for the 1st 6 months after which section 21 can be used to evict on an accelerated procedure with no need to go to court.Any advice just drop a reply.