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Deposit protection schemes
There are a range of protection schemes available to UK landlords, each providing a vital safeguard for the millions of tenants renting their property. In this article we explain what a deposit protection scheme is and your responsibilities under the scheme as a landlord.
What is a deposit protection scheme?
Renting is big business in the UK, with over 50% of households in London alone housing tenants. With the average residential house price in the UK just shy of £300,000, buy-to-let landlords have found it necessary to raise rents and rental deposits too. It’s, therefore, never been more important to both tenants and landlords that rental deposits are held safely.
The deposit protection scheme was introduced in April 2007 after legislation contained in the Housing Act 2004 made it a legal requirement for any landlord renting out their property to place their tenants' deposits into the scheme.
Aside from the legal liability it places on a landlord, this arrangement gives tenants an assurance that their deposit money is safe, which typically improves trust between parties.
There are multiple deposit protection schemes available across the UK, depending on where your rental properties are based. They are collectively referred to by a range of names other than the deposit protection scheme, such as tenancy deposit schemes, deposit protection services, landlord deposit schemes, deposit security schemes, deposit guarantee schemes and rent deposit schemes.
All are backed by the government and fulfil the same goal, to ensure tenants' deposit money is held safely and returned to them at the end of the tenancy - unless they cause damage, fall behind on rent, or violate the tenancy agreement.
What schemes are available for landlords?
There are three tenancy deposit protection schemes in England and Wales that landlords can use:
Tenancy Deposit Scheme (TDS)
As the longest running deposit protection scheme, TDS are likely to be the most well-known provider of this type of service. Tenancy Deposit Scheme offers both custodial protection, which is free and insured protection for a small fee. With the latter type, the landlord holds the deposit, but it’s insured by TDS.
Deposit protection service (DPS)
The deposit protection service provides deposit protection services for both landlords and letting agents. They also offer both custodial and insured protection.
Mydeposits
Mydeposits was created as an alternative to the existing two deposit security schemes in 2007. They differ in the sense that as well as providing services to landlords and letting agents, they also provide a tenant deposit scheme which is directly accessible by tenants.
Deposit protection in Scotland and Northern Ireland
In Scotland, there are also three different deposit protection schemes available, which work in a very similar way to the above schemes:
In Northern Ireland the Tenancy Deposit Scheme is the only organisation offering this service, which again, is similar to those in England, Wales and Scotland.
What should tenants know at the start of the tenancy?
It is a legal requirement that landlords ensure their tenants are aware of the deposit protection scheme protecting their deposit within a month of moving into the property.
Details should include:
The address of the rental property
The tenant’s name and contact details
The landlord's name and address or that of the letting agent representing them
The deposit amount
The name and contact details of the tenancy deposit protection scheme and its dispute resolution service
Reasons you may hold onto some or all of their deposit at the end of the tenancy (ie.e damage to property)
How the tenant can recover their deposit at the end of the tenancy
What should landlords do at the end of a tenancy?
At the end of the tenancy landlords should ensure that the deposit is returned to the tenant, once they have assessed the property and deducted any reasonable penalties and/or outstanding rental payments.
Tenant responsibility vs landlord responsibility
When it comes to rent deposit schemes, most of the responsibility lies with the landlord rather than the tenants, particular ensuring that the scheme is in place. These include:
Placing all deposits in a suitable scheme within 30 days of receiving them and sending the details of the scheme to the tenant
Returning the deposit to tenants within 10 days of the end of the tenancy, unless a deduction is agreed upon by both parties. Disputed deposit money is held in the scheme until the matter is resolved
In England, your deposit requirement must be in line with the deposit cap included in The Tenant Fees Act introduced in June 2019. This caps the deposit you can ask from a tenant at a maximum of the equivalent to five weeks’ rent for assured shorthold tenancies with an annual rent of up to £50,000, or six weeks' rent for tenancies with an annual rent of £50,000 or more - whether or not the tenant has a pet. This applies to all tenancies and tenancy renewals signed on or after 1 June 2019
A tenant is responsible for
In order to reclaim their deposit at the end of the tenancy, the tenant also has certain responsibilities under deposit protection schemes. They must:
Meet the terms of the tenancy agreement
Not damage the property
Pay the rent and bills as agreed
Deductions can be made from the deposit if the above responsibilities are not met.
Handling a deposit dispute
When a landlord feels that the tenant has not met their responsibilities as a tenant, and of the tenancy deposit scheme, they should discuss the matter with both the tenant and the deposit protection scheme holding the deposit.
The scheme will retain custodianship over the deposit until the deposit dispute is resolved. All schemes offer free and unbiased dispute resolution support to help both parties come to an amicable agreement.
Tenants have the right to take the dispute to arbitration at county court, should they feel that the landlord is being unfair in their reasons for holding the deposit and/or amount of the deposit being withheld.
Deposit protection scheme FAQs
Are holding deposits protected in a deposit protection scheme?
Yes they are held by a neutral intermediary, which will be the chosen scheme. It’s important to understand, however, that the scheme does not guarantee that either party will be entitled to receive the full deposit at the end of the tenancy.
Tenants will need to ensure they fulfil their obligations in order to get the deposit back and landlords must provide a justified and provable reason for holding onto any aspect of the deposit funds.
What happens if a third party pays for the deposit?
If a third party pays for a deposit, it will still be held with a deposit protection scheme, but details of the third party will be included in the contract. This is to ensure that it is returned to the right party once the tenancy has ended.
Third party deposits are vulnerable to the same conditions as they would be if the tenant had paid it themselves. This means that if the tenant breaks the terms of the deposit protection scheme and/or tenancy, then the deposit can still be withheld either in part of in full.
How do you confirm whether a landlord has used a deposit protection scheme?
All landlords have a legal obligation to put deposits into a protection scheme within 30 days of receipt and to notify the tenant that they have done so, providing details of where it is held.
If tenants have reason to believe that a landlord has not placed their security deposit into a relevant scheme, they can contact any of the schemes to check. Further details can be found on the government’s deposit protection page.
