Tenancy Deposit Scheme

In April 2007 The Government made it compulsory for those receiving tenancy deposits in England and Wales to join a Tenancy Deposit Scheme.

Main aims

  • To ensure good practice in deposit handling, so that when a tenant pays a deposit and is entitled to get it back they can be assured that this will happen.
  • To assist with the resolution of disputes by having an alternative dispute resolution service (ADR). It will also encourage tenants and landlords to have in place, from the outset, clear agreement on the condition of the property through best practice, such as the use of inventories, and agreement on the condition of the property.

How it Works:

Letting Agents

The tenant pays the deposit to the Agent at the beginning of the tenancy. It is held intact until the check out is complete and a proposal for the settlement has been agreed with both the Landlord and the Tenant. If agreement is reached, the agent will distribute the money in the normal way. If there is disagreement the agent will try to negotiate but if this fails the money and the dispute will be sent to the Tenancy Deposit Scheme for Regulated Agents (TDSRA) for adjudication. Once a decision has been reached the money will be distributed to the parties accordingly.

Private Landlords

Private Landlords will be able to choose between two types of scheme: a single custodial scheme and two insurance-based schemes.

Custodial scheme:

  • The tenant pays the deposit to the landlord;
  • The landlord then pays the deposit into the scheme;
  • The Landlord must provide the tenant with details of the scheme being used within 14 days of receiving the deposit;
  • If there is no dispute at the end of the tenancy the Landlord and Tenant will inform the scheme and the deposit will be returned as agreed;
  • If there is a dispute, the scheme will hold the disputed amount until the dispute resolution service or the courts decide what is fair;
  • The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be used to offer interest to the tenant, or landlord if the tenant isn’t entitled to it.

Insurance-based schemes:

  • The tenant pays the deposit to the landlord;
  • The landlord retains the deposit and pays a premium to the insurer. This is  the key difference to the custodial scheme;
  • The Landlord must provide the tenant with details of the scheme being used within 14 days of receiving the deposit;
  • At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit;
  • If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved.
  • If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

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