The Tenancy Deposit Protection Scheme
As from April 6th 2007, any landlord or letting agent entering into an Assured Shorthold Tenancy Agreement with a tenant who pays a deposit, will have to ‘protect’ the deposit by signing up to one of three Government authorised schemes, under the new Tenancy Deposit Protection (TDP) Scheme.
Aims
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To ensure good practise in deposit handling;
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To assist with the resolution of disputes by having an alternative dispute resolution (ADR) service;
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To encourage landlords and tenants to enter into a clear agreement on the condition of the property, e.g. by way of an inventory.
Penalties
Currently a landlord can obtain possession after the first six months of an assured shorthold tenancy agreement providing any fixed term has expired and the landlord gives the tenant at least two-months’ written notice.
However, under the TDP the landlord is unable to regain possession of the property using this notice-only ground if the deposit has not been safeguarded and the prescribed information passed on to the tenant within 14 days of the landlord receiving it.
Furthermore, where the Court believes that the landlord has failed to comply with the TDP requirements, or the deposit is not being held in an authorised scheme, the Court must either order the landlord to repay the deposit, or to pay it to a scheme. The Court must also order the landlord to pay the tenant three times the deposit amount.
Which Scheme?
There are two types of scheme: custodial and insurance-based.
Under both schemes, the landlord has to, within 14 days of receiving the deposit, give the tenant the prescribed information about the scheme being used.
In each scheme the deposit must be returned within 10 days of the landlord and tenant agreeing how the deposit should be divided, or within 10 days following notification of an ADR/Court decision.
The main difference between the two schemes is: -
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Custodial Scheme: –
Under this scheme, the landlord has to pay the deposit into the scheme as soon as he receives it. This scheme and the ADR are free to use and open to all landlords and letting agents.
The only company that runs this scheme is the Deposit Protection Service.
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Insurance-based Schemes: -
The landlord can retain the deposit and pays a premium to the insurer, but the ADR is free. If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.
There are two different companies that run this Scheme: -
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The Tenancy Deposit Scheme, is designed to primarily enable letting agents to continue holding deposits;
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Tenancy Deposit Solutions Ltd is designed for landlords to continue to take and hold deposits. Landlords can join via the website.
Obligations
In order to comply with the requirements of the TDP, landlords must: -
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Incorporate specific clauses into all tenancy agreements entered into on or after 6th April 2007;
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Deal with the deposit in accordance with an authorised Scheme;
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Comply with the requirements of the Scheme within 14 days;
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Provide the tenant with the appropriate information relating to the deposit within 14 days of receiving the deposit;
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Deal with the return of the deposit within the specified time limits.
Outcome
It is hoped that the state of renting in England and Wales will improve. Landlords will provide better inventories, they will take photographs of the property before the tenancy so that any damage can be proved, and tenants will think twice before withholding rent. Also, it is hoped that disputes over deposits will no longer clog up the small claims courts. Whether or not the TDP will have the desired effect will remain to be seen.
Please contact a member of our specialist Landlord & Tenant department for further information and advice.