By law, landlords are required to put deposits in a government backed tenancy deposit scheme if you rent your home on an assured shorthold tenancy (starting after 6 April 2007). In England and Wales, the deposit can be registered with either of the following:

* Deposit Protection Service
* MyDeposits
* Tenancy Deposit Scheme

As a landlord, you must put the deposit in the scheme within 30 days of receiving it. The deposit needs to be protected even if the tenant themselves did not pay it. If their friend or relative paid it, it will still need to be protected.

Insurance or Custodial Scheme?

Each provider runs an insurance scheme and a custodial scheme. 

Insurance:

Under this type of scheme, the landlord or agent keeps the deposit during the tenancy. If there is a dispute at the end of the tenancy, the scheme will tell the landlord to pay the disputed amount into the scheme whilst providing a free dispute resolution service.  To use an insurance scheme, landlords will have to pay a fee.

Custodial: 

Under this scheme, landlords or an agent will pay the deposit into the scheme when they receive it. The deposit is then held in the scheme during the tenancy and refunds your deposit at the end if the landlord agrees. If there are any disagreements about deductions, the scheme has a dispute resolution service which will decide on the amount that is to be returned to the tenant.

What are the Penalties?

Landlords face compensation claims and restricted eviction rights if they do not follow the law on protected deposits.

As a landlord, a court can order you to pay your tenant compensation for the following reasons:

1. Failing to protect the tenant’s deposits in a government-backed scheme
2. If you do not give your tenants, the prescribed information
3. If you take longer than the 30 days to protect the deposit

The amount of compensation can be up to 3 times the value of the deposit. However, the court will look at the circumstances of each individual case.

Deductions from the Deposit:

If a landlord wishes to retain part or whole of the deposit, there must be a clear written reason for doing so. This is why it is good practice to have a thorough inventory. This can be compared with the check-out report and schedule of condition.

Some reasons why a landlord may wish to deduct the deposit:

1. Unpaid rent at the end of the tenancy
2. Unpaid bills at the end of the tenancy
3. Missing items
4. Damage to the property or its contents
5. Unwanted belongings
6. Lack of sufficient hygiene

The deposit must be returned to your tenants within 10 days of you both agreeing how much they’ll get back.

If you have any questions in regards to this article, please do not hesitate to contact us - 01202 805060.