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What do you need to know about tenancy deposits?

By Guest Blogger on in Letting, Renting

What do you need to know about tenancy deposits?

Buy-to-let landlords have a legal obligation to protect any deposit that they receive from a private tenant.

But what are the correct procedures surrounding tenancy deposits?

Ryan Weston, writing on behalf of Just Landlords Insurance Services, explains:

In England and Wales, it’s mandatory for investors to protect any deposit received for an assured-shorthold tenancy (AST) that began on or after 6 April 2007 in a Tenancy Deposit Scheme.

A Tenancy Deposit Scheme is a Government approved, independent third party that is permitted to protect tenants’ deposits for the duration of the tenancy agreement.

English and Welsh landlords are required to register deposits in one of three Government approved schemes:

Landlords are permitted to use a Tenancy Deposit Scheme even if deposits are paid by a third party – for example via a rental deposit scheme.

For renters not using an assured-shorthold tenancy, landlords can accept items of value as a deposit, rather than monies. It must be noted however that these items are not protected by a scheme.

Insurance and custodial schemes

There are two types of deposit scheme options open to landlords – Insurance and Custodial.

Insurance

An insurance based scheme will see landlords required to pay a small fee for each deposit protected. In return, investors can keep the deposit in their own bank account for the duration of the tenancy agreement.

At the conclusion of the agreement, landlords are free to return all of the deposit to tenants, or make any necessary deductions from this, without involving their chosen Tenancy Deposit Scheme. As such, an insurance scheme is ideal for landlords with higher value deposits.

Custodial

Custodial schemes are free of charge. Landlords looking to use this type of scheme to protect a deposit are required to transfer the relevant amount to their chosen Tenancy Deposit Scheme. The scheme itself will then hold the deposit on behalf of both the landlord and tenant.

At the end of the tenancy agreement, both parties contact the relevant Tenancy Deposit Scheme to authorise return of the deposit. In the event of deductions being requested, the dispute resolution service will resolve any issues.

Prescribed information

The Housing Act 2004 states that once a landlord or letting agent has protected a deposit under one of these three schemes, the tenant must be provided with details regarding this protection within 30 days. This is known as the prescribed information.

Prescribed Information provided must include:

  • The full address of the rented property.
  • The total value of deposit taken.
  • Which scheme the deposit has been protected under.
  • The full name and contact details of this scheme, in addition to its dispute resolution service.
  • The full name and contact details of any third party involved with the deposit.
  • Situations that would constitute some or all of the deposit being held.
  • The procedure outlining how the tenant can apply for the deposit back.
  • What the tenant should do in case of a deposit dispute.

Failure to adhere to deposit protection requirements could see landlords fined up to three times the deposit amount. What’s more, investors would be unable to serve a section 21 notice to regain possession of their property.

Disputes

Should a dispute occur at the end of the tenancy agreement, the chosen Tenancy Protection Scheme offers a free dispute resolution service in order to solve the issue. This is not mandatory and both the landlord/agent and tenant must agree to use the service.

The chosen scheme will then make an impartial decision, with the value of the deposit allocated accordingly.

Scotland and Northern Ireland

There are different Tenancy Deposit Schemes for landlords in both Scotland and Northern Ireland.

Scotland

Scottish landlords and letting agents are legally obliged to follow rules under the Tenancy Deposit (Scotland) Regulations 2011. Tenancy Deposit Schemes came into force in Scotland on 2 July 2012.

There are also three Government approved schemes in Scotland, which are:

The date on when the landlord took a deposit will determine when they have to comply with legislation. The table below shows important dates for Scottish landlords and under what regulation number they must adhere to:

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Source: http://www.gov.scot/Topics/Built-Environment/Housing/privaterent/landlords/tenancy-deposit-schemes#Tenancy

Regulation 42 of the Tenancy Deposit (Scotland) Regulations 2011 states landlords must provide tenants with the prescribed information within the timescale indicated in the table above.

Northern Ireland

In Northern Ireland, landlords must protect deposits taken on or after 1 April 2013 in a Tenancy Deposit Scheme. Deposits taken before this date are not required to be protected.

The three approved, registered schemes in Northern Ireland are:

All deposits must be protected within 14 days of receipt. The prescribed information is required to be given to renters within 28 days of this date.

Should landlords in Northern Ireland provide accommodation for university students, any deposits received on or after 1 April must be protected in an approved Tenancy Deposit Scheme. This is regardless of who actually pays the deposit.