What private landlords need to know about the tenancy deposit scheme
The tenancy deposit scheme (TDS) is something which can trip up private landlords. Especially those who are renting out their first property. The very fact there is a tenancy deposit scheme comes as a surprise to some landlords. If you're in this bracket we've put together this handy guide. It tells you all you need to know about the tenancy deposit scheme (sometimes known as the deposit protection scheme).
It became law in 2007
Since April 2007 private landlords who let their property on an assured shorthold tenancy must protect their tenant's deposit.
There are separate schemes in England, Scotland and Northern Ireland
We'll be discussing the tenancy deposit scheme as it applies in England and Wales.
There are two types of scheme
There are insurance and custodial schemes.
The landlord or letting agent retains the deposit. But you pay a premium to the scheme. This is the insurance part. In the event of a dispute, you or your letting agent sends the disputed amount to the scheme.
The landlord or letting agents transfer the deposit in full to the scheme. They then hold the deposit until the end of the tenancy. Custodial schemes are free of charge.
It's an obligation, not an option
As a private landlord, you have no choice about using a tenancy deposit scheme. It's a legal obligation. And, like any law, if you don't obey it there will be penalties.
You can't protect the deposit with just anyone
You must protect your tenant's deposit with one of the government's authorised schemes. You can choose from:
If you don't use one of the above you have not complied with the law.
Ignorance is no defence
As a private landlord, you need to know the law. If you fail to protect your tenant's deposit you literally have no defence. If your tenant claims compensation you will lose the case. And you will be severely out of pocket.
You will have to pay compensation if you don't protect your tenant's deposit
There are serious consequences if you don't protect a deposit. Your tenant can claim compensation. And as we pointed out earlier they will win the case.
The judge will order you to pay between one and three times the original deposit. You may also have to refund the deposit. And you have to do this within 14 days of the judgement. To add to the penalties you won't be able to serve a Section 21 notice on your tenant.
What is the point of TDS?
The aim of the scheme is to ensure the tenant receives their deposit back in full. Unless they are liable for any deductions.
In days gone by unscrupulous landlords would withhold the tenant's deposit for the most spurious reasons. The tenancy deposit scheme ensures that can't happen anymore.
But the scheme also protects the private landlord. In a dispute, you are able to provide evidence to an independent arbitrator who, if you prove your case, will ensure you recover your full costs.
How does the tenancy deposit scheme work?
Essentially it's quite straightforward.
- Your tenant pays you their security deposit.
- You must protect the deposit in a government approved scheme within 30 days.
- You must provide your tenant with details on the scheme.
- At the end of the tenancy, you return the deposit to the tenant.
- If you wish to deduct a portion or all of the deposit to cover the cost of damage, cleaning or rent arrears you must inform the tenant.
- If the tenant agrees to the deduction you (or the custodial scheme) keep that amount and pay the balance to the tenant.
- If the tenant disputes the amount you are claiming you can use the dispute resolution service provided by the tenancy deposit scheme.
- An independent arbitrator decides the dispute.
- The tenancy deposit scheme then distributes the withheld deposit according to the judgement of the arbitrator.
When do I protect the deposit?
You must protect the deposit within 30 days of receiving it. You must also provide your tenant with the prescribed information within the same timeframe.
What is the prescribed information?
You must give your tenant the following information:
- The property address.
- The amount of the deposit.
- How the scheme protects the deposit.
- The contact details of the tenancy deposit scheme you have used.
- Your own contact details or those of your letting agent.
- Reasons why you may deduct some or all of the deposit.
- How the tenant should apply for the return of the deposit.
- What the tenant should do in the event of a deposit dispute.
- What the tenant can do if they can't contact you at the end of the tenancy.
What happens if there is a dispute?
If you and your tenant can't come to an agreement you can use the dispute resolution service. This is provided free of charge by your tenancy deposit scheme. To support your claim you should submit evidence. Remember you have to prove your tenant has broken their tenancy agreement. Your evidence could include:
- The inventory.
- Tenancy agreement.
- Bank statements.
- Invoices and estimates.
Your tenant too can submit their own evidence. An independent arbitrator will then decide whether you are entitled to the disputed amount. The arbitrator’s decision is final and binding.
Where can I learn more about the tenancy deposit scheme?
You can visit the government website here.
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