What sort of tenancies will
deposit protection apply to?
From 6th April 2007 all tenancy deposits taken by
landlords/agents in relation to assured shorthold tenancies (ASTs) in England
and Wales. The legislation will not apply in Scotland initially although there
is provision in their own Housing Act for similar provisions to be introduced at
some stage in the future. 
What about other
sorts of tenancies? Company Lets or high rent non-Housing Act contractual
tenancies?
These are not required to be covered by the TDP legislation but there
is no reason why a TDP Scheme Administrator could not deal with deposits held
under those types of tenancy on a voluntary basis if it wishes to offer that
service.
How will tenancy deposit
protection (TDP) work in practice?
There will be two types of scheme: a custodial scheme
and one or more insurance-backed schemes. To avoid disputes having to go to
court, both types of scheme will be supported by an alternative dispute
resolution (ADR) service – although the use of this will not be compulsory as
either parties’ right to go to court will still be available. The tenant will
not have the option of choosing the custodial or insurance-backed scheme – it
will be for the landlord/agent to decide which of the schemes will be used to
protect the tenancy deposit.
When will the schemes
come into effect?
6 April 2007. For any AST started on or after that date the
tenancy deposit must be covered by one of the TDP schemes. Existing deposits on
ASTs already in place will fall under the legislation if and when a fixed term
renewal is created. A deposit on a pre-existing AST which went, before 6 April or becomes, after that date, periodic, does not have to come under the
new regime.
Who will be running
the schemes?
A competitive tendering exercise, under European Union procurement
rules, is underway to select suppliers and award contracts to run the schemes.
What stage is the
procurement exercise at?
The Office of the Deputy Prime Minister (ODPM) has received outline
proposals for running the schemes. Detailed negotiations will take place during
late March and April with short-listed potential suppliers. The successful
suppliers will be awarded contracts fro a custodial scheme and one or more
insurance-backed schemes, in late Spring 2006.
How will the
insurance-backed scheme work?
The tenant will pay the deposit to the landlord/agent as now. The
landlord/agent will retain the deposit for the duration of the tenancy having
informed the scheme administrator of all the details about the tenancy. This
will assure the return of the deposit (or part of it) to the tenant when he or
she is entitled to it. [Refer to Q.16, 17, 19 for what happens in the event of a
dispute]
Will a landlord/agent
pay for the deposit to be covered by an insurance-backed scheme?
Yes, there will be a cost for a landlord/agent to belong to an
insurance-backed scheme. This fee or premium will be set by the scheme
administrator.
Will a tenant have to
pay for or contribute towards the cost of the deposit being covered by an
insurance-backed scheme?
No, the legislation makes clear that the associated costs cannot be
passed on to the tenant.
How will the
custodial scheme work?
The tenant will pay the deposit to the landlord/agent as now. But,
and here’s the difference from the insurance-backed scheme, the landlord/agent
will then pay the deposit into the custodial scheme. At the end of the tenancy
if the landlord/agent and tenant agree how the deposit should be apportioned,
they will tell the scheme, which will refund the deposit money as agreed. [Refer
to Q.16, 18 for what happens in the event of a dispute]
Will
landlords/agents have to pay to use the custodial scheme?
No, the custodial scheme will be free to use by landlords/agents.
Will a tenant have
to pay for or contribute towards the cost of the deposit being held by the
custodial scheme?
No.
How, then, will the
custodial scheme be paid for?
By benefiting from the interest generated on all the deposits held in
the custodial scheme. The majority of this interest will go to the contractor
(scheme administrator) to pay for the running of the scheme; a small nominal
amount will be allocated to the deposit to be returned to the tenant/landlord.
Where the deposit, or part of it, is apportioned between the two parties (i.e.
following a dispute), the nominal interest accrued will be apportioned on a
pro-rata basis.
Will the proposed
insurance-backed scheme be open only to landlords/agents who are members of
recognised grouping, trade body, or professional
organisation?
No, the membership of any insurance-backed scheme should not be
dependent upon the landlord/agent already belonging of a particular
organisation.
Aren’t these
provisions unfair on good landlords/agents?
No, most landlords/agents deal fairly with tenancy deposits. However, these
provisions need to be put in place to force the minority of bad landlords to act
responsibly by safeguarding tenancy deposits. The provisions put into place a
simple process for all landlords to go through to ensure tenancy deposits are
safeguarded. This is in the interests of all landlords/agents and tenants.
What about deposit
disputes?
Each scheme will contain an alternative dispute resolution (ADR) service. It is
currently proposed that, at the point that the dispute arises (after the end of
the tenancy) and provided both parties agree to use the ADR service, the ADR’s
decision will be binding, and there will be no recourse to the courts. If, on
the other hand, one or other of the parties does not agree to make use of the
available ADR service, then the dispute will have to go to the courts to decide.
In the event of a
dispute under the insurance-backed scheme, what happens to the deposit?
If there is an end of tenancy dispute and the tenancy deposit is
safeguarded by an insurance-backed scheme, your landlord/agent will not be able
to hold all of it while the dispute is settled. Instead, the landlord/agent will
be required to transfer to the scheme the amount of the deposit that is in
dispute. Then, agreement can either be reached to use the scheme’s ADR service
or in the absence of mutual agreement, the dispute will go to court. The scheme
will subsequently apportion and refund the disputed amount in accordance with
the ADR service’s, or the court’s, decision.
For example, say the original deposit was £1000. At the end of
the tenancy the landlord/agent states that he intends to retain £200 to pay for
replacing damaged furniture and £50 as a contribution towards cleaning. The
tenant accepts the cleaning charge but the tenant disagrees about the furniture
claiming that the furniture was already damaged when the tenancy commenced.
Clearly the remainder £750 (of the £1000 deposit) is not in dispute and belongs
to the tenant and should be returned to him/her. The agreed charge of £50 can be
retained by the landlord/agent and the remainder, the disputed amount of £200,
will then be transferred to the scheme administrator until the dispute is
settled either by the ADR or the courts.
In the event of a
dispute under the custodial scheme, what happens to the deposit?
The deposit will of course already be held by the custodial scheme
administrator from commencement of the tenancy. If the landlord/agent cannot
agree to the apportionment of the deposit, the disputed amount will remain in
the scheme. Any undisputed amount will be returned to the parties as
appropriate. The two parties will then agree to use the custodial scheme’s ADR
service or either of them can exercise their option of taking the matter to
court. The scheme will subsequently apportion the disputed amount in accordance
with the ADR service’s, or court’s, decision.
What happens if the
landlord/agent fails to transfer the disputed amount into the insurance-backed
scheme when the dispute is raised?
The scheme itself will pay the tenant any of the disputed amount due
to him as a result of the ADR service’s or court’s decision. The scheme will
then take action against the landlord/agent to recover the outstanding money.
When does a tenant
get their money back?
For the custodial scheme: within 10 days of the scheme being provided
with evidence of agreement between landlord/agent and tenant or, where there is
a dispute, the scheme being provided with the ADR service’s, or court’s,
decision.
For the insurance-backed scheme: within 10 days of the tenant
requesting that the landlord return the deposit, or, where there is a dispute,
within 10 days of the scheme being provided with the ADR service’s, or court’s,
decision.
Can the deposit be
paid back before the statutory timescales – i.e. on the last day of the tenancy?
Yes. The 10 days referred to is a maximum. For example, where a
tenancy is protected under the insurance-backed scheme and there is no
disagreement between the parties about any apportionment or deductions the
deposit can be dealt with more quickly because it will be held by the
landlord/agent.
If the AST deposit
has not been protected under either one of the types of scheme, what protection
does a tenant have?
Until the deposit has been safeguarded by a scheme, the landlord/agent is unable
to regain possession of the property using the usual “notice only” ground for
possession (section 21).
How will a tenant
know or be able to find out if the deposit has been protected? At
commencement of the AST the landlord/agent will have to provide the tenant with
details of the scheme under which the deposit is to be protected (the custodial
or an insurance-backed scheme). The tenant will be able to contact the scheme
administrator to establish that their deposit under that specific tenancy has
been registered.
What happens if a
landlord/agent has not protected the deposit under one of the schemes?
The tenant can apply for a court order forcing the landlord to place the deposit
under the protection of one of the schemes and or requiring the landlord to
provide the tenant with the prescribed information about the location of the
deposit e.g. the scheme details.
Where the court is satisfied that the landlord/agent has
failed to comply with the requirements and the deposit is not being held in
accordance with an authorised scheme the court must either:
- Make an order requiring, that within 14 days, the deposit
amount is repaid to the tenant, or,
- Order the landlord to pay the deposit amount into the
designated account held by the custodial scheme administrator.
The court must also order the landlord/agent to pay, within 14
days, to the tenant (or person who paid the deposit on her/his behalf) an amount
equivalent to three times the deposit amount.
What if I move put
of the property before realising my deposit hasn’t been protected under one of
the schemes?
You will need to apply for a court order and the court will make an
order requiring the landlord to repay the deposit to you. It is in your
interests to check at commencement of the tenancy that your deposit has been
protected so that you avoid this situation.
Inventories are
going to be very important to assess deposit disputes – will it be mandatory to
have one on every AST?
This has not yet been decided, there are arguments for and against
making it mandatory to have an inventory. A decision on this will be made later
in the year.
Disclaimer
The answers in this note are provided in good faith and are based upon the
information currently available (February 2006) but are subject to change
as Statutory Instruments still have to be laid before parliament and contracts
negotiated by successful scheme administrator bidders.
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