From April 6th 2007 all deposits taken by landlords in England and Wales must be protected by a tenancy deposit scheme. The scheme currently only applies to Assured Shorthold Tenancies, the most common type of tenancy agreement. There are two main reasons for this.
- To ensure that when a tenant has paid a deposit and is entitled to get it back that this actually happens
- To assist in resolving disputes which arise regarding refund of deposits.
The scheme also hopes to encourage landlords and tenants to make clear from the outset the terms and conditions of the lease to avoid disputes occurring.
There are two types of scheme on offer and it is up to the landlord to choose which they will use.
Custodial
- The tenant pays the deposit direct to the landlord who then pays it into the scheme
- The landlord must provide information to the tenant about the tenancy and which scheme has been used within 14 days
- At the end of the tenancy, if both parties agree to the amount of deposit returnable, the scheme is notified and returns the deposit to be divided as agreed
- If there is a dispute as tothe amount of deposit to be returned the scheme will hold on to the deposit until the dispute is resolved
- Interest on payments held during dispute settlement will be used to pay for the running of the scheme with any left over paid to the tenant (or the landlord if the tenant isn’t entitled to it)
Insurance based
- The tenant pays the deposit direct to the landlord
- The landlord retains the deposit and pays a premium to the insurer
- The landlord must provide information to the tenant about the tenancy and which scheme has been used within 14 days
- At the end of the tenancy, if both parties agree to the amount of deposit returnable, the landlord returns the appropriate amount of the deposit
- If there is a dispute the landlord must hand over the disputed amount to the scheme for safe-keeping until the dispute is settled
- If the landlord fails to comply the insurance arrangements will ensure that the tenant receives their deposit back if they are entitled
Under both schemes the deposit must be returned within 10 days of agreement or settlement of any dispute.
For more information on the scheme visit the Shelter website