What Is A Tenancy Deposit Protection Scheme?

As a landlord, if your tenant is within an Assured Shorthold Tenancy (AST), you must put your tenant's deposit into a government-approved tenancy deposit scheme (TDP).

If the tenant is outside an AST, then as a landlord, you can accept valuable items (like a car) as a deposit instead of money, but the scheme will not protect the items.

The government schemes ensure that the tenants will get their deposit back if they meet the tenancy agreement terms, do not damage the property and pay their rent and bills.

As the landlord, you or your letting agent must put your tenants' deposit in the government-backed schemes within 30 days of getting it.

What Is A Tenancy Deposit Protection Scheme?

A Tenancy Deposit Protection Scheme is a government-backed initiative designed to protect the rights of both landlords and tenants in the rental sector. TPD schemes ensure tenants' deposits are handled daily and returned appropriately at the end of the tenancy.

As the property's landlord, you can only serve a Section 21 Notice to your tenant if you have protected their deposit correctly.

What Are The 3 Tenancy Deposit Schemes?

In England and Wales, three tenancy deposit schemes are available to you, which all offer options; a custodial deposit scheme and an insured scheme.

The custodial deposit means the scheme holds the deposit for free, and the insured deposit means that you or your letting agent has the deposit and you pay the scheme to insure it.

There are three different scheme providers, which are all backed by the government:

Deposit Protection Service (DPS)

You can choose free custodial deposit protection at the DPS or have insured protection for a minimal fee: no annual membership charges, renewal fees or hidden costs.

MyDeposits

At MyDeposits, you can choose between custodial and insured protection, but they also offer a free dispute resolution service for tenants and landlords at the end of the tenancy.

Tenancy Deposit Scheme (TDS)

The Tenancy Deposit Scheme offers three levels of protection; Custodial, NRLA offer, and insured deposits.

Do I Have To Protect My Tenant's Deposit?

It is a legal requirement for the landlord to protect your deposit in an approved scheme if they are in an AST.

If you do not put the tenant's deposit into a scheme within 30 days, you will be ordered to repay it or put it into a custodial system within 14 days.

You may be liable to pay your tenant compensation, up to 3 times the amount of the deposit.

What Can My Tenant Do About An Unprotected Deposit?

Before your tenant can take you to court, they should attempt to negotiate with you by writing a letter informing you that you haven't complied with the Tenancy Deposit Scheme Rules, and you may be liable to pay them compensation.

Your tenant will provide you with a 21-day deadline, and if you don't respond, negotiate or accept the terms, then the tenant can take you to court to get compensation.

What Government Regulations Have Changed Tenancy Deposit Schemes?

Tenants Fees Act 2019

Due to the Tenants Fees Act 2019, landlords in England are limited to a five-week deposit for new (rent equivalent to under £50,000 per annum) and a six-week deposit for renewed tenancies (rent equal to over £50,000 per annum).

The five or six-week rent is the cap at which you can ask for a total deposit.

All AST's, Tenancies of Student Accommodation and Licences to occupy housing in private rented sector in England are applicable to The Tenants Fees Act 2019.

Deposit Cap

The holding deposit is now capped at a maximum limit of one week's rent and must be rebounded to the tenant within seven calendar days of the tenancy disrupted or 15 days from the deposit deadline notice.

Due to the deposit cap, you cannot charge any other additional deposits, like pet deposits, if you have already maxed out at the 5 or 6 weeks rent cap.

An agent or landlord can charge a 3% maximum Bank of England base interest rate on rent over 14 days overdue. But you cannot demand a late payment of the rent fee.

Breach of Obligations

Due to Section 8, as the landlord, you can still create deposit deductions for breach of obligations, but you must provide how the obligation was breached, that a loss has been suffered or that the deposit can be used against that loss.

You can still charge the tenant at the end of their tenancy if they fall into rent arrears, as long as the agreement orders the renter to pay the rent and the deposit use clause allows for it to be used for rent arrears.

Check-in and out fees are prohibited under the act, but landlords can charge an early expiry fee as long as it doesn't exceed the financial loss that the landlord has suffered in permitting the tenant to leave early or the reasonable costs that the agent has incurred in arranging for the tenant to vacate.

Renters Reform Bill

When the Renters Reform Bill passes in parliament and becomes a legal obligation, this will significantly shuffle the tenancy agreement legislation that is currently in place.

Landlords will be allowed far more control over the repossession of their property but can only service a 'no fault' eviction notice with clear documentation that there has been a breach of obligations.

Why Is A Tenancy Deposit Protection Scheme Important In The UK?

Understanding the context around a Tenancy Deposit Protection Scheme can help you know why you should be helping to protect yourself and the tenant.

One of the most significant reasons for the existence of tenancy deposit protection schemes is to safeguard a tenant's funds. Security deposits are typically significant amounts of money tenants pay at the start of a tenancy to assure landlords.

By law, deposits in England can be at most five weeks' rent, which will differ depending on the property's location.

Another reason why tenancy deposit schemes are essential is that disputes between landlords and tenants regarding the return of a deposit can often arise at the end of a tenancy.

The schemes offer an impartial dispute resolution service that allows both parties to present their case fairly and securely. An independent adjudicator will review the evidence and create a fair verdict, ensuring the outcome is balanced.

The clear guidelines provided by the schemes foster better landlord-tenant relationships.

Tenants will feel reassured that their deposits are protected and their rights are respected.

Landlords or letting agents feel reassured that the property won't be damaged while demonstrating established trust and goodwill with their tenants.

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