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Tenant Deposit Protection: Everything a Landlord Should Know

Is it compulsory?

Yes. Since 2007 it has been a legal requirement for all English or Welsh private landlords to lodge their tenants’ deposits with one of the three government-backed and approved schemes.

What if I don’t?

There are two consequences. Firstly, a tenant can take their landlord to court and claim both their deposit in full and compensation of between one and three times the deposit. Secondly, it is MUCH more difficult, costly and time consuming to evict a tenant if their deposit hasn’t been lodged correctly in the first place.

What do I need to do?

Once a landlord receives a tenant’s deposit they then have 30 days to lodge it with one of the government-backed tenant deposit protection schemes (see below) and provide the tenant or tenants with proof of where it’s being protected. 31 days is no good – it must be within 30 days.

Where is the money sent?

The three schemes are:

The Tenancy Deposit Scheme (TDS)
My Deposits
The Deposit Protection Service (DPS)

A landlord must sign up with the service they choose to use and create an account.

How do they work?

All three services offer two types of deposit protection; one in which a landlord deposits the cash with the scheme which then administers it and pays the tenant their deposit back directly at the end of the tenancy.

The other is insurance-based deposit protection. This means the landlord keeps the deposit, but pays their chosen protection scheme a fee to insure it. If the landlord won’t hand back the deposit at the end of the tenancy or there is a dispute, then the insurance scheme covers both landlord and tenant if it all goes wrong and no one can agree on who gets what.

Will it cost me anything?

Only if you choose the second option outlined above. The fee is usually approximately £15 per deposit lodged, although the three deposit schemes often do price promotions, and members of the Residential Landlords Association get discounts too.

What happens when the tenants move out?

If there is no dispute between the landlord and tenant over things like damage to the property or unpaid rent, then the landlord lets the deposit protection service know and the deposit is returned to the tenant in full.

If the tenant and landlord agree on a reduction to cover the cost of repairing a damaged wall, for example, then a deduction is made from the deposit and this reduced payment is then returned to the tenant, and the remainder given to the landlord.

If both sides don’t agree on money being taken off the deposit, then the deposit protection service in question is then and a dispute resolution service is brought in to take evidence. It then issues a decision/judgement that the deposit protection service follows.

Do I have to use an approved scheme?

No. One way around all this paperwork is not to charge a deposit at all, and instead take out an insurance policy against any future damage to the property or unpaid rent. These are called ‘No Deposit’ schemes and vary in their set-up – but most charge the tenant for the insurance. Search online for ‘alternative deposit protection’ and you’ll find several on offer. They are popular with tenants too, because they don’t have to stump up thousands to move into a property. Two of the main providers are No Deposit and Reposit.