This guide will explain more about the TDP and what types of tenancy agreements are covered in these schemes and also what landlords and tenants need to do to use them.
When to use Tenancy Deposit Protection Schemes (DPS)
Tenancy Deposit Protection (TDP) schemes guarantee that at the end of a tenancy, the tenants will get their deposits back, so long as they do not damage the property and meet the terms of their tenancy agreement. It is a Landlords responsibility to ensure that they protect their tenants deposits using a TDP scheme if the property is let on an assured shorthold tenancy (AST) which started after 6 April 2007. However, in certain circumstances, this will not apply such as when the Landlord lives in the property with their tenant. In this instance, the Landlord is not required protect their tenants deposits. However, it is still advisable to use such a scheme even if it is not a legal requirement to do so. There are three approved TDP schemes to protect tenants deposits where these conditions apply. Landlords or Agents must use one of these schemes to protect the deposits to ensure they are protected in law. If any other scheme is used, then they will not be protected in law. The three approved schemes for use are as follows:
- Deposit Protection Service (DPS)
- My Deposits
- Tenancy Deposit Scheme (TDS)
It is essentially to use one of these schemes if you are a Landlord or an Agent since your Tenants will have a legal right to take you to court and you may have to repay them their deposit plus three times the amount of their deposit. An other consequence of not using one of the approved schemes could also mean you will be unable to seek possession of your property in certain circumstances. By using these schemes:
- Landlords and Tenants are encouraged to draw up clear tenancy agreements which are agreed by both parties.
- Should any issues arise during the tenancy between the Landlord and Tenant, a free service is provided to resolve disputes.
Although the TDP schemes provide a service for securing tenancy deposits, they do not cover holding deposits which a tenant can pay a Landlord or Agent before they have signed a rental agreement on a property. It is not a legal requirement to protect these holding deposit with any type of scheme before signing a tenancy agreement. However, if a holding deposit has been paid on the property and the person does become a tenant. This holding deposit then becomes a deposit which must be protected by one of these schemes.
Protecting Student Tenants Deposits
If you are letting your property to students, it is also a legal require for deposits to be protected by the TDP scheme if:
- The tenancy is an assured shorthold tenancy
- The full deposit on the property was received on or after 6 April 2007
You must protect students’ or any other tenants’ deposits even if they were paid by someone else – for example, their parents.
Protecting Tenancy Deposits made by a Third Party
If the tenant is not paying the deposit themselves and it is being paid by a third party, e.g. a rent deposit scheme, a TDP scheme must still be used. Landlords should enquire about what relationship the tenant and third party are to each other and find also find out how much the third party wants to be involved in the tenancy process. A reason for this is due to the deposit scheme administrator needing to know if the third party wants the deposit returned directly to them at the end of the tenancy, or if it is to be returned to the tenant.
Choosing a TDP Scheme
There are two types of TDP schemes – custodial and insurance-based. Any landlord can use the custodial scheme but there are some restrictions on who can use the insurance-based schemes. Tenants can expect a decision as to how much of their deposit is going to be returned to them within ten days from the end of the tenancy. Any part of the deposit kept back at this stage will remain protected in the scheme being used until such time as any dispute is resolved. The exact arrangements depend on the type of scheme used.
There is only one available Custodial TDP scheme and that is provided by the Deposit Protection Service (DPS). Under this custodial scheme, the tenants deposit money is held in the Deposit Protection Service’s bank account and when the tenancy comes to an end, the DPS then pays back the deposit to the tenant. The custodial DPS scheme must be used by all landlords who are based overseas, unless the overseas landlord chooses to employ a UK registered letting agent to manage the tenancy. If landlords choose to use the DPS for tenants using a rent deposit scheme (for example, where a council is paying for the tenants deposit) and the tenant leaves the property. It is possible for the landlord to agree with the council or the third party to keep a hold of the deposit to act as the next tenants deposit.
- External Link: The Deposit Protection Service (DPS) website.
Insurance Based Schemes
If the landlord (or the landlord’s agent) chooses to hold the deposit themselves using an Insurance Based Scheme to hold the tenant’s deposit. They must pay a fee to insure the deposit to ensure that they will not illegally keep the deposit at the end of the tenancy.At the end of the tenancy, the tenant can ask the landlord for their deposit. If the landlord refuses to pay the deposit, the insurer will pay back the tenant their deposit and then try to get the money back from the landlord. Where a tenants’ deposits are paid in instalments as part of a rent deposit scheme, the landlord will be required to use an insurance-based TDP scheme.There are currently only two insurance based providers are (all links open in a new window):
To be able to use the TDS scheme, landlords must belong to an approved professional body such as a trade association, which ensures it’s members have client money protection insurance. TDS insurance ensures that the tenants deposit money which is held by a business is protected against loss, even if the person or the company goes out of business. Examples of approved bodies under TDS include the (all links open in a new window):
- Association of Residential Letting Agents
- Royal Institution of Chartered Surveyors
- National Association of Estate Agents
- National Approved Letting Scheme
The Costs of using a TDP Scheme
Depending on which scheme the landlord or letting agent chooses to use, the schemes are either free or incur a fee for membership. The custodial DPS is free to landlords and letting agents, where as the insurance based schemes My Deposits and the TDS charge a fee for membership and they also charge insurance premiums on top.
Getting the information you need about the TDP scheme provider
Landlords should find out the following details from their TDP scheme provider:
- name and contact details of the scheme
- contact details for the scheme’s dispute resolution service
- how to apply for the deposit’s release
- what to do if the landlord or tenant can’t be contacted at the end of the tenancy
- how the deposit is protected
Within 14 days of receiving their tenants’ deposits, landlords must give this information to their tenants, together with the:
- the address of the rented property and the amount of deposit paid
- the landlord’s or letting agency’s name and contact details
- the name and contact details of any third party that has paid the deposit
- items or services covered by the deposit
- the circumstances under which the landlord will be able to retain some or all of the deposit
- what to do if there is a dispute over how much deposit should be returned
If your letting agent manages deposits and goes out of business
Landlords are responsible for making sure the deposit is kept safe with one of the schemes even if they use a letting agent to look after the deposit. The scheme provider will expect you as landlord to pay it back any money it has to pay to the tenant if it is unable to get the money from the managing agent. You should therefore consider what arrangements your agent has made to keep tenants’ money separate and available even if it goes out of business.