Many landlords and tenants are unaware of
Deposit Protection laws.

It is well known there is a lack of affordable houses especially for first time buyers. With property development becoming big business, the number of people buying to let has risen rapidly over the past decade. For many people looking for somewhere to live, the only option available to them is to rent, and with 1.6 million people on local authority waiting lists, the chances of getting a council house are slim. Many people find they have no other choice but to rent privately.

While most tenants and landlords have good relationships, some tenants have found their tenancies less than secure. The majority of tenants enter into an Assured Short-hold tenancy agreement; where after the initial six months they can be given two months notice to leave at any time, without any given reason. Another problem tenants can experience is that some landlords do not give them back their deposit, after their tenancies end.

Around 85% of landlords take deposits, and a survey by the Citizens Advice Bureau and Shelter suggests that around a fifth of these deposits are not paid back. Tenants who entered into an Assured Short-hold tenancy before April last year, have had little chance of getting unfairly withheld deposits paid back to them. Their only option after negotiation has been to take their landlords to court.

The Tenancy Deposit scheme (TDS) which came in to law in April 2007 has been created to address this problem, and provide a fairer system for settling disputes over the return of deposits. However it hasn’t been well publicized and 30,000 landlords have failed to sign up for the scheme. Many landlords are unaware of the scheme, and it’s quite likely they will be in for a shock when tenancies end.

So what does the Tenancy Deposit scheme (TDS) mean for landlords and tenants? It basically means that landlords have to protect their tenant’s deposits by using one of three schemes, and that an independent body will help determine whether the tenant should receive the deposit back or not. Failure to join a scheme may result in having to pay the tenant three times the deposit back, and forfeiting their rights to repossession of the property.

The TDS covers tenants who are:

• Renting a property from a landlord or a letting agent after the 6th of April 2007.
• and have an Assured Short-hold tenancy.
• and are paying less than £25,000 rent a year (under £480 a week).
• and are paying a deposit.

Landlords can choose one of three government approved schemes to protect their tenant’s deposit. The first option is to hand the deposit over to a custodial scheme, while the other two schemes are insurance based where the landlords retain the deposit but pay insurance premiums, so the deposit is insured if there is any dispute. (see information at the end of this article for contact details for these schemes)

Within 14 days of receiving the deposit from their tenants, landlords need to let their tenants know:

• Which tenancy deposit scheme they are using.
• Information about the purpose of the deposit.
• How to apply to get the deposit back at the end of the tenancy.
• What to do if there is a dispute.
  

The schemes have rules to follow on what costs can and can’t be deducted from a tenant’s deposit. For example the deposit cannot be held back for putting right normal wear and tear, (which was one of the main reasons for withholding deposits before the TPS came in). If there is no dispute the landlord should return the deposit to the tenant within 10 days, and if it’s been held in the custodial scheme the tenant should also receive interest earned on the money. If however there is a dispute, each scheme offers a free service called the Alternative Dispute Resolution service. If the landlord and tenant agree to use this service they will not be able to then go to court.

If the landlord does not protect a tenant’s deposit, or does not inform the tenant of the scheme used within 14 days, the tenant is still protected, although it will probably mean going to court. Their option is to apply to the County Court to have the deposit paid back to them. In this instance, the likely outcome is that the court will order the landlord to pay the tenant compensation of three times the deposit paid, as well as their costs.

In addition if the landlord hasn’t protected the deposit and/or informed tenants about it within 14 days, there are restrictions on how they can evict tenants. As mentioned previously, a landlord can give 2 months notice without having to show reason, however if they haven’t protected the deposit they forfeit this right, making it more difficult for a landlord to evict a tenant.

In order to ensure protection under the scheme, Shelter recommend when moving in to a property tenants write a detailed inventory. An inventory is a list of everything that is provided with the property, including furniture, carpets, curtains, appliances and kitchenware. It should state the condition everything is in, particularly anything that was already damaged, marked or worn. Landlords have to prove the condition of the property before tenants moved in, in order to deduct any money from the deposit.

While this scheme has been put in place to protect tenants, it can also be useful to protect landlord’s, in the event of rent not being paid for example. Despite this it the TPS has not been welcomed by many landlords, and the National Landlord Association (NLA) report there is anecdotal evidence that some landlords are not asking for deposits at all now. However the NLA advise against this, as deposits are paid to safeguard landlords against damage to their property, as well as encouraging tenants to respect and look after the property. Ultimately the Dispute resolution service is impartial and aims to be fair to both parties involved.

Shelter, has campaigned for many years for a law to prevent tenant’s deposits being withheld unfairly, and welcome the Tenancy Deposit scheme. Before the scheme became mandatory, more than half of all disputes between tenants and landlords resulted in the landlord refusing to return deposit money. However with an estimated fifth of landlords, and many tenants, still unaware of the Tenancy Deposit scheme, many deposits may still be withheld. Only time will tell how successful this scheme will be, as tenancies created after April last year come to an end. Its success, however, will be dependant on landlords and tenants being aware of the scheme and complying with it.


For more information look at:
http://www.adviceguide.org.uk/
http://www.shelter.org.uk/
National landlords association http://www.landlords.org.uk/

Deposit protection schemes include:
Custodial scheme: http://www.depositprotection.com/
Insurance schemes:
Tenancy deposit solutions http://www.mydeposits.co.uk/
Tenancy deposit scheme http://www.thedisputeservice.co.uk/