Tenancy Deposit Protection Scheme: Landlord’s Guide
Estimated reading time 8 minutes
As a landlord there can be a variety of issues to navigate during the time tenants use your property. One most common is the deposit.
Important at the start of a new contract and just as important at the end, the deposit is an area that poses many questions and often, only two answers. Yes, it will be returned or no, it will not.
As a landlord you have obligations to fulfil and should you fail to comply, you could find yourself in a host of problems that could see you not only out of pocket, but in legal trouble too.
Aside from the health and safety aspects of the property and cost, the deposit is perhaps one of, if not, the most important part of the tenancy to the occupiers. After all, it can go some way to helping them secure their next property should they continue renting.
So, in this blog, we look at what you as a landlord need to do to remain compliant with the handling of the deposit a tenant uses to rent your property.
Does a landlord need to put their tenant’s deposit in a protection scheme?
As a landlord, one of your responsibilities is to ensure that the deposit paid to you in advance of the rental period starting is safely looked after. If you rent out your home on an assured shorthold tenancy that began after 6th April 2007, it must be placed in a tenancy deposit protection (TDP) scheme.
These schemes are government-backed and ensure that a tenant can receive their deposit at the end of their tenancy if they keep on top of all rent payments, don’t leave any outstanding bills behind, and have left the property in a suitable condition with no significant damage.
How much deposit can a landlord charge their tenants?
Since 2019 a cap has been introduced to ensure that landlords charge a fair and reasonable amount for a rental property deposit. The amount you can charge can vary so it is important you understand what the cap is so that you don’t charge someone an amount that contravenes the Tenant Fees Act 2019.
At the time of writing, the act states that tenants can be asked for a deposit capped at the equivalent of 5 weeks’ rent for assured shorthold tenancies where the rent will not exceed £50,000 in one year. Should the annual rent be more than £50,000, a deposit of up to 6 weeks’ rent can be asked for.
How soon does a landlord need to protect the tenant’s deposit after receiving it?
Within 30 days of receiving the funds, either you as the landlord or the management company you have chosen, must secure the deposit in the scheme. Once you are in a scheme, the funds can be held one of two ways. Either as an insured or custodial scheme.
What is the difference between an insured or custodial deposit scheme?
When you protect the deposit in one of the three available government-backed schemes, you will be able to decide whether you want it to be insured or custodial. Whilst the protection of the deposit remains the same, how it is held will vary.
With a custodial deposit, the funds are held by the TDP scheme you have chosen to use and released to the tenant at the end of the contract by the organisation protecting the funds.
If you choose to opt for the insured tenancy deposit protection scheme, you will hold the funds yourself but pay a small fee to the scheme provider as a form of insurance.
Who can the landlord accept a deposit from?
The tenants themselves can pay the deposit but it can also be paid on behalf of them by someone listed as a relevant person. This could be a family member, employer, guarantor, or local authority.
What are the tenancy deposit protection schemes for landlords?
The government website advises of three schemes to place deposits should you be renting out property in England or Wales. Should you live in Scotland or Northern Ireland, there are alternative schemes available.
The schemes for property in England and Wales are:
- Deposit Protection Service
- Tenancy Deposit Scheme
- MyDeposits
Does a landlord need to inform tenants that their deposit is protected?
Yes. Within 30 days of receiving the deposit funds, you must provide a variety of information to your tenants. This is often referred to as PI or prescribed information. This should include:
- The address of the rental property
- How much deposit has been paid
- How the deposit is protected
- Which scheme you are using and how they can contact them
- Contact details for yourself or the letting agent
- Reasons the deposit may be withheld at the end of the tenancy (this could be all or some of the value)
- How the deposit can be returned
- What to do should a dispute arise about the amount or the return of the deposit
- What alternate contact arrangements are there should you not be reachable at the end of the tenancy
How soon does a landlord have to return the deposit to tenants?
At the end of the tenancy, subject to check-out procedures taking place and any disputes being raised, you must return the deposit to the tenants within 10 days of you reaching an agreement with them over how much should be returned.
This can sometimes be confused with it needing to be returned 10 days after the tenancy ends. This is not true, both parties have the option to raise disputes so the process can be drawn out should agreements fail to be reached.
What happens if a landlord or tenant raises a dispute over the deposit?
Should you have determined that the full value of the deposit is not to be returned, you must illustrate to the tenants why. They can dispute this, should they feel it necessary.
Should you have a dispute with your tenants yourself over the return of the deposit, you can benefit from a free dispute resolution service provided by the tenancy deposit protection (TDP) scheme you have chosen. Sometimes though it can also be beneficial from getting advice from the CAB or a solicitor.
It is worth noting that the deposit is protected until a dispute is resolved and if you opted to hold the funds yourself, they must be handed directly to the TDP scheme whilst a dispute is in progress.
What happens if a landlord doesn’t protect a tenant’s deposit?
If you are operating without the assistance of a letting’s agent, you will need to do most of the groundwork yourself. With a lettings firm behind you, most of the work is done for you. Luckily, that means deposits and paperwork are all taken care of and free you up from additional worry.
Doing it yourself can lead you to forget things and one aspect, that if forgotten, can lead to complications is the deposit. If you decided not to protect the deposit, or forgot to and your property is one where funds must be protected, the tenants could approach a local court.
They can do this at any stage of the tenancy and if the court finds that the tenants have a case, they can order you to repay it to the tenants or pay it into a custodial TDP within 14 days of the ruling.
Worse still though is the potentially increased fees. The court, if it feels justified in doing so, could order you to pay up to three times the value of the deposit within 14 days of the order being made.
To make things even harder for a landlord, the court can also decide that the tenants do not need to vacate the property when the tenancy ends if they chose not to use a TDP scheme when they were meant to.
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