Introduction

Tenancy deposit scheme in the UK

This article covers the Tenancy deposit scheme in the UK. When it comes to renting a property, a tenant does not naturally have the same kind of security that a homeowner might do. Everyone has the right to a feeling of security, and to have a roof over their heads. As a landlord, it is your duty to ensure that your tenants feel that security. Considering their rights and feelings is always essential, and while the home that you are letting out to them is a business for you, it is also their home.

While there are situations where you should have the right to remove your tenants from your property, such as repeated non-payment, causing severe damage to your property, or for any illegal activities that center around their tenancy. There should not be any unexpected reasons why you should have to serve them their notice without sufficient time to allow them to find somewhere else.

Tenant’s rights extend further than this. When it comes to moving on at the end of a rental agreement, unless there have been any issues with their tenancy, they have the right to be able to get their deposit back from you. Not only do these deposits technically belong to the tenant, very often, but these deposits will also be something that the tenant may be relying on in their move to a new property.

 

What Is A Tenancy Deposit?

At the start of a shorthold assured tenancy agreement, you are entitled to seek a deposit from the tenant. This deposit is the landlord’s safety net, only to be used in a situation where a tenant has caused damage to a property if the tenant steals or loses anything that belongs to the landlord, or in the event of non-payment of rent. 

If everything goes well with the tenancy, then the deposit is returned to the tenant after they have moved from the property. This must be done promptly, and it is the responsibility of the landlord to release these funds as soon as is reasonably possible. 

Some landlords may be inclined not to take a deposit from their tenant, believing that there is no need. While this may be acceptable in some situations, it is far from advisable.

The deposit is there for the landlord’s benefit to act as a security against the tenant. However, while it is the case that this money is set aside for these purposes, the landlord is held to some very strict rules that are designed to protect this deposit and remove any possibility of any unfair behaviors such as demanding a deposit that is unreasonably high, taking or spending the money themselves, or not returning the deposit at the end of the tenancy without due reason.  

 

How Much Should A Tenancy Deposit Be?

The tenancy deposit is usually the same value as four to five weeks’ rent. If the tenancy was agreed on, or after 1 June 2019, then the maximum legal limit is five weeks’ rent unless the annual rent is over £50,000, in which case it is six weeks. This means that all tenancy agreements that start in 2020 will be held to this same five-week maximum deposit limit.

Once you have taken the tenancy deposit from your tenant, it should be put into a government-approved tenancy deposit scheme. There are strict guidelines that manage this process, and it is essential that you adhere to these. 

 

What Is The Tenancy Deposit Scheme?

The Tenancy Deposit Protection (TDP) is a government-backed scheme designed to protect the deposits of all tenants in all assured shorthold tenancy agreements that started after 6 April 2007. 

The way that scheme works is that all deposits for assured shorthold tenancy agreements must be registered with a government-approved scheme and the deposit must be placed in the scheme to safeguard it. 

In England and Wales, there are currently three schemes available, and the landlord must choose one of these. The schemes are:

• Tenancy Deposit Scheme (TDS)
• MyDeposits 
• Deposit Protection Service

In Scotland and Northern Ireland, equivalent schemes are running in place of these, and the landlord’s responsibilities remain the same. 

Once the deposit is registered with the relevant protection scheme, the landlord then has a duty to pass on all relevant information about the scheme to the tenant. 

The deposit must be placed into the scheme of the landlord’s choosing within 30 days of the date that the tenancy agreement starts.  

 

What Are The Landlords Legal Obligations Surrounding TDP?

There are a number of legal obligations for the landlord and the onus on them and not the tenant to ensure that the deposit is registered with a suitable tenancy deposit protection scheme. 

Firstly, the deposit needs to be registered with the relevant scheme within 30 days of the start of the tenancy. The tenant also needs to be informed where their money is held and provided details of the scheme within this time.

In the event that the tenant discovers that the deposit has not in fact been put into a registered scheme, the tenant has the right to take the case to their local courts. If it is found that the landlord has in fact failed in their duty to secure this deposit within one of the government-backed protection schemes, then the court may be able to demand that the landlord pay it into a registered scheme within 14 days, ask that the deposit be refunded to the tenant, or demand that the tenant is compensated up to three times the value of the deposit.

Without the proper protection that a tenancy deposit scheme offers, landlords may also face difficulty should they ever need to evict their tenant under section 21 of the Housing Act.  

With genuine repercussions for not following the procedures surrounding the protection and registering of tenancy deposits, landlords need to ensure that they are managing this process carefully. 

 

What Options Are Available In Terms Of Registering The Deposit?

When it comes to placing the deposit into a protection scheme, there are two main types of schemes that are open to landlords. 

• Custodial 

Within the custodial schemes offered by the Tenancy Deposit Scheme, MyDeposits and Deposit Protection Service, the entirety of the deposit is paid directly into the scheme. 

This option has no charges attached to it for the landlord and is entirely free to use. The money is held by the scheme and at the end of the tenancy, once agreed by the landlord, it can be transferred straight back to the tenant.  

In the event of a dispute over any deductions, the scheme will provide a resolution service that will decide home much will get returned to the tenant. 

• Insurance Based

Insurance-based schemes differ in that the landlord registers the deposit but keeps it themselves for the duration of the tenancy. They are not legally allowed to use this money for anything as it is still owned by the tenant, this means that they must keep it safe and not spend it.

In the event of a disagreement at the end of the tenancy, then the landlord must hand over any disputed amounts to the scheme who will then provide resolution to all parties. 

The landlord will have to pay fees to use an insurance-based scheme, and the cost of these fees will depend on the scheme that is selected. 

 

How Do Landlords Go About Deducting From A Deposit?

There may be times at the end of a tenancy where a landlord feels that it is appropriate to make deductions from the deposit. This is generally because of damage to the property or if it has been left in an unclean state and requires professional cleaning. If the tenant has any remaining unpaid rent, if there are bills relating to the property which have been left unpaid, or if anything that was on the property’s inventory is missing or has been stolen. 

There needs to be clear and justifiable reasoning behind deducting a deposit, and the amount that is taken from it should be reasonable and relative to the cause. 

At the end of the deposit, the tenant should request their deposit back from the landlord. They must inform them immediately if there are to be any deductions with a full breakdown of these. 

A deduction can only be legitimized in one of three ways, if the tenant agrees to the deduction, in the event of a dispute resolution, or if a court decides that it is fair.  

 

Tenancy Deposit Schemes In Summary

Tenancy deposits are there to act as a safeguard for the landlord. However, government-backed tenancy deposit protection schemes have been put in place to provide protection for the tenant. 

It is a legal requirement that all landlords adhere to the procedures of the tenancy deposit protection schemes as to not do so may result in fines. Once you have entered into a tenancy agreement with anyone renting out a property, the landlord must also ensure that they are staying informed about any changes to the law that may affect them and their tenants.