The relationship between a landlord and tenant is synergistic. In return for regular payments, the tenant gets to live in the landlord’s property and promises to look after it. It is a mixture of trust and compliance. A significant upfront deposit is almost always taken, to help protect the landlord when circumstances mean that either the regular payments or due care, may not have been evident. But what protects the tenant from an unscrupulous landlord from withholding some, or all of the deposit at the end of the rental period?
What is a deposit protection scheme?
A deposit protection scheme is a government approved way of protecting the tenant. It helps to ensure that the landlord will return the full deposit, where there are no arrears or undue damage to the property. It gives the tenant peace of mind that they will be treated fairly and gives the landlord a fair and transparent system by which they can withhold monies that may be owed. Deposit protection schemes are sometimes referred to as tenancy deposit protection (TDP).
What types of rentals are covered by the scheme?
In England and Wales, a landlord is required to place a tenants’ deposit in a deposit protection scheme for assured shorthold tenancy rentals that started after 6 April 2007. There are some exceptions, for example if there is a live-in landlord, or for student accommodation let directly by a university. Other exclusions include rental values of over £100,000 a year and company lettings.
What deposit protection schemes are available?
There are three government approved schemes available in England and Wales:
It is the landlord’s responsibility to inform the tenant of which scheme is being used, within 30 days. Failure to use one of these approved schemes to protect a tenant’s deposit could result in penalties being incurred by the landlord, including a fine equivalent to 3 months’ rent.
A 2017 government survey of nearly 8,000 landlords showed that 27% of landlords either had not used a valid scheme or were unsure if they had. Landlords should be mindful that ignorance of the law is no defence!
How do deposit protection schemes work?
There are two types of deposit protection scheme, custodial and insurance. The custodial schemes are usually offered at no cost to the landlord, the insurance-based schemes incur the cost of the underlying insurance policy. Insurance based schemes were more popular when interest rates were higher, allowing the Landlord to earn a return on the rental deposit.
Custodial scheme
In a custodial scheme, the landlord uses one of the approved schemes to hold the deposit for the duration of the tenancy. Once the tenancy has ended, the landlord and tenant agree how much of the original deposit should be repaid.
Insurance scheme
In the case of an insurance scheme, the landlord can retain the deposit (rather than depositing it) but must pay a fee to do so (the insurance). At the end of the rental period, the tenant is repaid directly by the landlord. If the landlord fails to do so, the insurance company will pay the tenant and then seek to recover the funds from the landlord.
End of rental period
At the end of the rental period, the landlord can make appropriate deductions for things like
- Rental arrears
- Unpaid utility bills
- Damage to the property or furnishings
- Breach of the tenancy agreement resulting in financial costs
- Required cleaning to bring the property back to the pre-rental state
- Unacceptable alterations to the property
The appropriate deposit must be returned within 10 days of both parties agreeing a fair figure. The deposit is protected in the scheme until this has been agreed. The deposit scheme will have a dispute service that can be used if a straightforward agreement is not possible.
Although not a legal requirement, we strongly recommend to both landlord and tenant that a detailed inventory, taken at the start of the rental period, is the best way to help ensure that appropriate deposit refunds are given at the termination of the rental.
How can Aspire To Move help?
For both landlords and tenants, a government backed deposit protection scheme is good news. It helps provide clarity and fairness to both parties. Each protection scheme is slightly different, and we would be happy to help you select the right one. Additionally, we can help if you realise you are one of the 27% of landlords who may not have used the scheme! To find out more, drop us an email or give us a ring:
Bath: 01225 444 333
Bristol: 0117 4501 400
We look forward to hearing from you and being able to help.
