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Tenancy deposits and deposit protection schemes - here's why they're so important

Published: 05/05/2022

Deposit protection is a critical element to consider as a landlord if you rent out residential property in England and Wales. These schemes are mandatory by law and put in place to ensure that you and the tenant are equally protected by certain requirements when a deposit is agreed upon.

This deposit can be held by you as the landlord during the term of the tenancy to cover any non-payment of rent, damage, cleaning, or breakages that may occur during the tenancy. Deposit protection has been a legal obligation on assured shorthold tenancies since April 2007.

Here, we take a closer look at what landlords need to know about deposit protection.

A legal obligation
Under UK law, any landlord letting property under an assured shorthold tenancy must place any deposit they receive in one of the three schemes available in England and Wales.
The three government-approved tenancy deposit schemes are as follows:
  • Deposit Protection Service (Custodial and Insured)
  • Tenancy Deposit Scheme (TDS)
  • My Deposits 
All tenancy deposit schemes offer you either a custodial or an insured protection scheme. The custodial scheme will hold your deposit for free, whereas with an insured scheme, you or the agent holds the deposit and you pay the scheme for it to be insured.
It is the responsibility of you or your letting agent to put your tenants’ deposit in the chosen scheme within 30 days of getting it, otherwise, you could find yourself in a vulnerable position, facing consequences such as: 
  • Your tenant will have a defence to any claim made by you for rent arrears.
  • Your tenant could claim three times the deposit amount in addition to the return of the deposit as recompense for your failings.
  • You cannot serve a valid Section 21 notice under Section 215 of the Housing Act 2004, with the only resolution available being that the deposit is returned to the tenant in full, or deduced as agreed between both parties, or to make a successful application to your country court under Section 214(1).
Procedure once the policy is protected
Once secured, it’s recommended that your tenant receives copies of any leaflets provided by the scheme which will contain relevant information regarding how it works.

This information will be imperative to the tenant/s since this is recognised as a legal requirement and failure to comply could lead to prosecution.

Making deductions
As the landlord you are able to make certain deductions from the deposit when the tenant fails to uphold their duties, as agreed within the tenancy agreement. Examples of these deductions are as follows:

Unpaid or outstanding rent
You are within your rights to deduct any unpaid monies from your security deposit if your tenant leaves whilst owing you rent or maintenance costs. You can also begin court proceedings to recoup the remainder amount in excess of the security deposit that you hold from your former renter.

Cleaning deductions
If it was agreed upon that the tenant cleans the property before they vacate, but fails to do so, then you may deduct money for doing it for them.

Missing items and damaged property
If you have reason to believe that an item has been damaged or have gone missing, then you can deduct money for the replacement. While your tenant is still occupying the residence and its contents suffer damage, then it is the tenants’ responsibility to repair or replace the affected area/item.
If it falls to you for the replacement at the tenant/s request, then you must present a receipt or estimate for items to your tenant/s if they request it before you make any deductions. The replacement of items due to normal wear and tear must be replaced by you, and deductions from the tenants’ deposit may not be made.

The end of the tenancy and the role of the deposit scheme
After an agreement is reached about how the deposit ought to be returned, the deposit scheme will return it for you. In the event of a dispute, your deposit scheme should be noticed immediately as they will then hold the deposit until the courts or their dispute resolution service decide on fair proceedings.
You can find out more about deposit protection schemes, and your responsibilities as a landlord, from what information you need to provide your tenants with to what happens if you don’t adequately protect their deposits, by clicking on thegov.uk page here.

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