TENANCY DEPOSIT SCHEME

A scheme set up for the purpose of safeguarding a tenancy deposit paid in connection with an assured tenancy or an assured shorthold tenancy (AST) and facilitating the resolution of disputes arising in connection with such deposits (Housing Act 2004, ss. 212–5, Sch. 10, as amended). The tenancy deposit protection (TDP) schemes are designed to ensure that, at the end of the tenancy, a tenant will get back any security deposit paid at the start, or during the term of the tenancy, provided the terms of the tenancy agreement have been met and there is no damage to property (excluding fair wear and tear). In the event of a failure of the tenant to comply with the terms of the lease (e.g. non-payment of rent or damage to the property), a deduction may be made from the deposit (based on the amount agreed or, failing agreement, as determined by dispute resolution). In any event, the deposit must be protected in the same way.

In England and Wales, with effect from 6 April 2007, any landlord or agent who takes a deposit under an assured or assured shorthold tenancy must protect that deposit using a government-authorised tenancy deposit protection (TPD) scheme. Originally the scheme only applied to a tenancy if the rent was £25,000 p.a. or less. With effect from 1 October 2010, the limit has been raised to £100,000 p.a., bringing all ASTs below that limit within the scheme (Assured Tenancies (Amendment) Act (England) Order 2010). An existing tenancy that comes within the increased limit is not affected immediately, but when the tenancy is renewed, or a new deposit is taken, any deposit has to be protected. (Although, it may be considered good practice to protect any deposit received for such tenancies.)

A landlord or agent must use one of three schemes for the protection of a tenant's deposit: (i) MyDeposits (ii) The Deposit Protection Service (DPS); or (iii) the Tenancy Deposit Scheme (TDS). These schemes are free to the tenant. If any other scheme is used the deposit is not protected by law. Mydeposits (www.mydeposits.com) is a government-authorised tenancy deposit protection scheme designed to enable landlords and letting agents to take and hold a deposit for the duration of the tenancy. The DPS (www.depositprotection.com) is a government-authorised custodial scheme that is free to use. The DPS funds are secured with UK Government approved banks and payment may be made in writing or online. A landlord, agent or tenant can request the repayment of a deposit to the appropriate parties at the end of a tenancy – either jointly or independently, online or in writing. Prior to requesting a repayment, both sides need to confirm that they agree with the proposal, by completing an acceptance form – either online or by post. In addition, the DPS provides an independent and free alternative dispute resolution (ADR) service that aims to resolve any disputes quickly and without the need for court action. A landlord who is based overseas must use the DPS scheme, unless a UK-based managing agent is employed to manage the tenancy.

The Tenancy Deposit Scheme may take the form of either (a) a "custodial scheme" or (b) an "insurance scheme". The custodial scheme requires that an amount equivalent to the deposit is paid into an account designated by the Deposit Protection Service. Under an insurance scheme the deposit may be held by the landlord or his agent, but on the basis that the agreed amount will be repaid to the tenant or, if not repaid at the end of the tenancy due to a dispute, will be paid into a designated account held by the scheme administrator The scheme administrator is required to set up insurance with an authorised insurance-based provider against the possibility of the landlord failing to reimburse any amount due to the tenant. If the landlord does not pay the tenant the amount owed at the end of the tenancy, or on the resolution of any dispute, the insurer will pay the tenant and then seek to recover the amount paid from the landlord. A deposit held in an insurance-based scheme does not pass on any interest earned to the tenant. The only insurance-based providers are Mydeposits or the Tenancy Deposit Scheme. TDS is an independent, not-for-profit, company established in 2003 to resolve tenancy deposit disputes in the private rented sector. It also operates a tenancy deposit scheme in accordance with the requirements of the Housing Act 2004. TDS can only be used by a member of an approved professional body (e.g. Association of Residential Letting Agents; Royal Institution of Chartered Surveyors; National Association of Estate Agents or the National Approved Letting Scheme), thereby providing an extra level of protection for the tenant. Amounts held in the designated account are only released to the landlord or tenant when both parties are in agreement or on the resolution of any dispute. The tenancy deposit scheme must also provide a facility to enable any dispute to be resolved without recourse to litigation (HA 2004, s. 212(2), Sch. 10, para. 10). Once the deposit has been paid the landlord has 14 days to notify the tenant which scheme has been used. The scheme does not apply to resident landlords (those living in the property); landlords of tenancies with rent of over £100,000 a year; letting by a company; and student accommodation let directly by a university or college (but not a student who is an assured shorthold tenant of a private landlord).

Within 14 days of the receipt of a deposit, the landlord of a property to which the scheme applies is required to provide the tenant (and any other relevant person) information regarding the authorised scheme that applies to the deposit and confirmation that he has complied with any other requirements of the scheme (HA 2004, s. 213(5)). In particular, the landlord is required to give the tenant certain prescribed information, including the address of the property to which the tenancy applies; the amount of the deposit paid; contact details of the parties to the tenancy, including the agent and/or the scheme administrator and any other relevant party (name, address, telephone e-mail address and any fax number); the circumstances when all or part of the deposit may be retained by the landlord, based on the terms of the tenancy; the procedures that are applicable to the scheme (including procedures if the landlord or tenant is not contactable at the end of the tenancy); the facilities for dispute resolution; and a certificate of authenticity of the information provided by the landlord, together with an opportunity for the tenant to sign any document containing information provided by the landlord as being accurate to the best of the landlord's knowledge and belief (The Housing (Tenancy Deposits) (Prescribed Information) Order 2007 (SI 2007/797)).
In the event that the landlord fails to comply with these statutory requirements, the tenant (or any relevant pary) may apply to the county court on the grounds that statutory requirements have not been complied with ofr the deposit has not been paid into an appropriate schem. If the court is satisfied that there has been a breach of the statutory requirements, it must order the repayment of the deposit, or its payment into a designated account. In addition, the court must order the payment of three times the amount of the deposit to the applicant (HA 2004, s. 214(3); Suurpere v Nice [2011] EWHC 2003, [2011] 39 EG 110). If the deposit is not protected by one of the schemes, it is not possible for the landlord to serve notice on the tenant and obtain possession of the demised premises (HA 2004, s. 215).

In the event that the landlord fails to comply with these statutory requirements, the tenant (or any relevant pary) may apply to the county court on the grounds that statutory requirements have not been complied with, or the deposit has not been paid into an appropriate scheme. If the court is satisfied that there has been a breach of the statutory requirements, it must order the repayment of the deposit, or its payment into a designated account. In addition, the court must order the payment of three times the amount of the deposit to the applicant (HA 2004, s. 214(3); Suurpere v Nice [2011] EWHC 2003, [2011] 39 EG 110). If the deposit is not protected by one of the schemes, it is not possible for the landlord to serve notice on the tenant and obtain possession of the demised premises (HA 2004, s. 215).

For this purpose a "deposit" is defined as "a transfer of property intended to be held (by the landlord or otherwise) as security for — (a) the performance of any obligations of the tenant, or (b) the discharge of any liability of his arising under or in connection with the tenancy", HA 2004, s. 213(8). Any such deposit can only take the form of money (HA 2004, s. 213(7)). The scheme does not apply to rent paid in advance or a 'holding deposit' paid prior to the grant of a tenancy, but once the tenancy commences any such holding deposit become a 'deposit' that must be protected.