Rented property focus - June 2011

You may have heard of the Tenancy Deposit Scheme, but do you really know how it affects you? In this month’s column, Rob Cooke highlights the importance of adequate deposit protection...

I know there are rules protecting a tenant’s deposit, but I don’t really understand why they were introduced. Can you explain?

Like most landlords, you will be aware that in April 2007 new laws were introduced stipulating that all assured shorthold tenancy deposits must be protected by a government-authorised scheme. This is to make sure that:

• Tenants get all or part of their deposit back when they are entitled
• Any disputes between tenants and landlords or their agents are easy to resolve
• Tenants are encouraged to look after the property they are renting 

Since 1997, most lease agreements for residential property are assured shorthold tenancies. This means the tenant usually has the right to stay in the property for at least six months, although the landlord or agent can agree a longer term. 

Assuming you have served adequate written notice, you can seek possession of the property at the end of the tenancy. If possession is required before this date, it must be for one of the reasons specified in the Housing Act 1988. A tenant who refuses to leave cannot be evicted without a court possession order. 

Unless you have protected your deposit in one of the available schemes and given your tenant information about how it works, you will lose your automatic right to regain possession of the property at the end of the tenancy.

How does the Tenancy Deposit Scheme work?

At the beginning of a new tenancy agreement, the deposit is paid to the landlord or agent as usual and it is their responsibility to ensure it is protected. 

There are three schemes to choose from. The first is a custodial scheme (the Deposit Protection Service), which holds the money until the end of the tenancy. This is free to use and they will simply retain your deposit from the beginning of your lease until the tenant leaves. 

The other two schemes are insurance-based (Tenancy Deposit Solutions Ltd and Tenancy Deposit Scheme) and allow the landlord or agent to retain the deposit, after paying a premium to insure against failure to repay the money to the tenant. 

You must provide your tenant with details about how their deposit is being protected within 14 days of taking the money. This must include:

• The contact details of your chosen Tenancy Deposit Scheme
• Your contact details or those of your agent
• How to apply for the deposit’s release
• Information explaining the purpose of the deposit and what to do if there is a dispute about its return 

At the end of the tenancy, the property’s condition and contents should be checked against the terms of your lease and you should agree with the tenant how much of the deposit will be returned. The tenant should then receive this amount within ten days. 

If an agreement cannot be reached about how much of the deposit should be returned, there are free services offered by the protection schemes to help end the dispute. The contentious amount of money will be held by the scheme until the issue is resolved.

What happens if I don’t secure my tenant’s deposit

If you don’t subscribe to one of the three Tenancy Deposit Schemes, your tenant can apply to the local county court for an order forcing you to repay the deposit or protect it in a scheme. If a deposit remains unprotected for more than 14 days, you could be required to pay the tenant three times the original amount. 

Landlords and agents should be familiar with their legal obligations and the three Tenancy Deposit Schemes before taking a deposit. For further information, visit the scheme providers’ websites. Details below:

• The Deposit Protection Service: www.depositprotection.com
• Tenancy Deposit Solutions Ltd: www.mydeposits.co.uk
• Tenancy Deposit Scheme: www.tds.gb.com

Rob Cooke is a partner specialising in commercial litigation with Sheffield solicitors, Taylor&Emmet LLP. Telephone 0114 218 4000.