What is the Tenant Deposit Scheme?
From 6th April 2007 any landlords or their agents who take a deposit from a tenant must have that deposit protected under one of two schemes:
1. A custodial scheme – this is where the deposit is held in an approved scheme during the deposit and will continue to be held if any legal dispute arises between the
landlord and the tenant.
2. An insurance based scheme – this is where the landlord keeps the deposit but the deposit is insured in case of any dispute.
It is for the landlord (not the tenant) to decide which scheme to choose. The custodial scheme is free to landlords and tenants. Part of the interest generated by
holding the deposit in the custodial scheme will be used to administer the scheme, the remainder of the interest will be paid to the tenant or the landlord.
However under the insurance based scheme the landlord must pay a premium, but keeps the deposit. If a dispute arises between the landlord and the tenant the landlord
must hand over the deposit to the scheme for safekeeping until the dispute is resolved. If the landlord fails to handover the deposit the scheme will abide by any
court order or ADR decision to pay the tenant and recover the money from the landlord.
At the end of the tenancy agreement the landlord and the tenant must agree on the amount of the deposit which is to be returned to the tenant and this must be repaid
within 10 days of agreement being reached (or in the case of the custodial scheme within 10 days of the scheme being notified of the agreement).
Are any landlords exempt from the requirement to protect deposits in a recognised scheme?
The new law applies to all new tenancy agreements from 6th April 2007 where the landlord takes a deposit from the tenant even if a landlord lives overseas. If the property is in England or Wales and the landlord takes a deposit then they will have to protect the deposit under one of the recognised schemes.
The new law does not apply to any landlords who do not take a deposit from the tenant.
The new law does not apply to tenancy agreements created before 6th April 2007. It also does not apply to tenancies created before 6th April 2007 which come to an end
after 6th April 2007 but continue as a periodic tenancy. However, if a replacement tenancy agreement is signed after 6th April 2007 the tenancy deposit scheme will
apply to the deposit taken prior to 6th April 2007.
Who will run the schemes?
There are currently three bodies approved by the government to administer the scheme:
1. The Deposit Protection Service (Custodial Protection Scheme) The Pavilions Bridgwater Road Bristol BS99 6AA Tel. No. 0870 7071 707
2. Tenancy Deposit Solutions Ltd (insurance-based tenancy deposit protection) Tenancy Deposits Solutions Ltd 3rd Floor, Kingmaker House Station Road New Barnet
Hertfordshire EN5 1NZ Tel. No.: 0871 703 0552
3. The Tenancy Deposit Scheme (insurance-based tenancy deposit protection) The Dispute Service Ltd PO Box 1255 Hemel Hempstead Hertfordshire HP1 9GN Tel. No. 0845 226
What information about the scheme is the tenant entitled to receive?
The landlord must inform the tenant of the details of the scheme and how the deposit is protected within 14 days of receipt of the deposit. This is done by serving written details on the tenant. The written details must include specific information (“the prescribed information”).
The CompactLaw Landlord’s Pack tenancy agreements have the prescribed information attached so that it can be served at the same time as the tenancy agreement. If a landlord fails to serve the written information on the tenant they will not be able to serve a s.21 notice requiring possession of the property at the end of the tenancy (although a landlord can still seek possession under any of the other grounds which apply to assured shorthold tenancies).
A tenant can seek compensation from the landlord for failure to serve the written information and this will be equivalent to three times the value of the deposit.
What happens if a dispute arises between the landlord and the tenant about the deposit?
Both schemes are subject to Alternative Dispute Resolution (ADR). However the use of ADR is not compulsory. However if a landlord and tenant agrees to use ADR then they will be bound by the decision of the ADR service and cannot have the matter settled by the court instead. Where a landlord or tenant is contacted by the scheme administrator and asked if s/he is prepared to consent to ADR and they fail to reply, the scheme can proceed with ADR simply on the basis of the consent of one party.
Instead of ADR the landlord or tenant can apply to the court to settle disputes about the return of deposits.
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