Information for landlords and tenants on assured shorthold tenancy agreements in England and Wales
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Tenancy Deposit Protection Schemes
What are Tenancy Deposit Protection Schemes?
Tenancy Deposit Protection Schemes were introduced through the Housing Act 2004, to enable tenants to get all or part of their deposit back from their landlord or letting agent providing they are entitled to it.
All landlords and letting agents renting property under an Assured Shorthold Tenancy in England and Wales are required by law to hold deposits under a Tenancy Deposit Protection Scheme.
The Tenancy Deposit Protection Scheme ensures that all landlords and letting agents treat their tenants fairly, and when entitled to the tenant receives their deposit back at the end of the tenancy.
The Housing Act defines a tenancy deposit as:
‘...any money intended to be held (by the landlord or otherwise) as security for:
a) the performance of any obligations of the tenant; or
b) the discharge of any liability of his;
arising under or in connection with the tenancy'.
If a landlord or letting agent receives any money from a tenant, which is not for a rent payment, even if it is not referred to as a ‘deposit’, the money has to be registered with a Tenancy Deposit Protection Scheme.
Why have Tenancy Deposit Protection Schemes been introduced?
Tenancy Deposit Protection Schemes were introduced from 6 April 2007, to make it easier for tenants to claim back their deposit.
There are two types of Tenancy Deposit Protection Scheme used by landlords and letting agents, either an Insurance Based Scheme or a Custodial Scheme.
Both types of Tenancy Deposit Protection Scheme have a service which deals with any deposit disputes, to avoid such matters going to the courts.
What type of tenancy requires the use of a Tenancy Deposit Protection Scheme?
With all Assured Shorthold Tenancy agreements the landlord or letting agent is required to pay the deposit from the tenant into a Tenancy Deposit Protection Scheme.
Assured Tenancies and company lettings are not covered by the Tenancy Deposit Protection Scheme.
On the 22 November 2006, the government decided on three service providers to run Tenancy Deposit Protection Schemes.
Custodial Protection Scheme
Insurance Based Protection Schemes
All three service providers are accessible to all letting agents and landlords. The schemes all offer an Alternative Dispute Resolution Service in case of any disputes in relation to refunding deposits.
What are Insurance Based Schemes?
This type of Tenancy Deposit Protection Scheme requires the tenant to pay the deposit to the landlord. The landlord then registers the tenancy and deposit amount with the Insurance Based Scheme.
The landlord is required to give the tenant details of the Insurance Scheme which they have registered the deposit with. The landlord retains the deposit for the duration of the tenancy. The Insurance Based Scheme provides the tenant with the security of being able to receive the deposit back at the end of the tenancy, provided they are entitled to it.
Is there a fee for an Insurance Based Scheme?
There is a cost for the landlord to join and Insurance Based Scheme and the fee is set by the particular scheme chosen.
When does a tenant receive their deposit back?
At the end of the tenancy if there are no disputes over the amount of deposit to be refunded the tenant will receive the deposit back. If both the landlord and tenant agree that the deposit is to be returned it must be returned to the tenant within ten days.
If there is a dispute, the disputed amount will be held until the dispute is settled, see section on What happens if a deposit dispute occurs?
What is a Custodial Scheme?
Custodial Protection Schemes require the tenant to pay the deposit to the landlord and the landlord to then pay this amount into the Custodial Scheme.
The landlord must pay the deposit into the Custodial Scheme within fourteen days of receiving it from the tenant. The landlord is also required to give the tenant the details of the Custodial Scheme which the deposit has been paid into.
How are Custodial Schemes paid for?
Custodial Schemes are free for both landlords and tenants to use. The interest as a result of holding deposits during tenancies pays for the running costs of Custodial Schemes.
When does a tenant receive their deposit back?
When the tenancy agreement has ended, provided the landlord and tenant agree on the amount of deposit to be refunded the Custodial Scheme will refund the money. A proportion of the interest accumulated on the deposit whilst it was held by the scheme will also be paid to the tenant.
If there is a dispute the disputed amount will be held until the dispute is settled, see section on What happens if a deposit dispute occurs?
When is a tenant protected by the Tenancy Deposit Protection Scheme?
If a tenancy began on or after 6 April 2007 and was let on an Assured Shorthold Tenancy the tenant is entitled to have their deposit protected through the Tenancy Deposit Protection Scheme.
At the start of an Assured Shorthold Tenancy the landlord is required to give the tenant details of the Tenancy Deposit Protection Scheme. The tenant then has the right to contact the company and check that the landlord has registered the deposit into either an Insurance Based or Custodial Scheme.
What information should the tenant and landlord have on the Tenancy Deposit Protection Scheme?
The Housing Act 2004 places a requirement on the landlord to provide the tenant with information about how their deposit is being protected, within fourteen days of receipt of the deposit.
The scheme that the landlord registers the deposit with will provide them with information, which should then be passed on to the tenant.
The scheme must provide the landlord with:
What if a landlord fails to provide the tenant with information on the Tenancy Deposit Protection Scheme?
When accepting a deposit the landlord or letting agent is required to ensure:
Failure to comply with any of above may lead to the landlord facing court action and being unable to reposes the property, under Section 21 of the Housing Act.
The tenant has the right to seek compensation if the landlord does not provide them with information about the Tenancy Deposit Protection Scheme used. The compensation for the tenant is equivalent to three times that of the deposit.
Both the Insurance Based and Custodial Schemes provide details of an Alternative Dispute Resolution Service (ADR).
Any disputes over the deposit can be refereed to the ADR service provided both the landlord and tenant agree to use this service to settle the dispute. Once the ADR makes a decision about the deposit this is binding and neither the tenant nor landlord can take the dispute to the courts. If the tenant or landlord does not wish to use the ADR service then the dispute is resolved through the courts.
Who holds the deposit when a dispute is in the process of being settled?
Insurance Based Schemes
If the deposit was registered with an Insurance Based Scheme, the landlord will not be able to hold all of the deposit whilst the dispute is being resolved. The undisputed amount can be returned to the tenant and the landlord can keep the remaining undisputed amount. However, the disputed amount is required to be put into the Insurance Based Scheme. Only when the ADR service or the court has reached a decision on how the deposit should be dealt with will the scheme refund the deposit based on the decision made. The deposit should be returned within ten days of the decision being made by the ADR service or the courts.
The disputed deposit amount will remain in the Custodial Protection Scheme, whilst the remaining undisputed amount can be retuned to both tenant and landlord. If both the tenant and landlord agree to use the ADR service provided by the Custodial Scheme, then the dispute can be resolved in this way. If there is a disagreement about using the service then the dispute can be taken to the courts. When the ODR service or courts have made a decision on the deposit dispute the amounts can be refunded accordingly by the Custodial Protection Scheme.
What happens when a landlord doesn’t enter into a Tenancy Deposit Protection Scheme?
The tenant has the right to apply for details of the Tenancy Deposit Protection Scheme the landlord has submitted their deposit to. If the landlord has failed to register the tenancy deposit with one of the Tenancy Deposit Protection Schemes, the tenant may apply for a court order.
If the court agrees that the landlord has failed to pay the deposit into a Tenancy Deposit Protection Scheme they may either require the landlord to repay the deposit to the tenant, within fourteen days, or to pay the deposit into a Tenancy Deposit Protection Scheme.
The court will also order that the landlord pays the tenant (or person who paid the deposit on behalf of the tenant) an amount equal to three times the initial deposit amount, within fourteen days.
What if a tenant moves out of the property and their deposit has not been protected?
It is advised that tenants check at the start of the tenancy to see if their deposit has been protected by a Tenancy Deposit Protection Scheme.
If the tenant moves out of the property and realises after that their landlord had not protected their deposit through a Protection Scheme, the tenant can apply for a court order to ensure the landlord repays the deposit.
What happens when the tenant or landlord cannot contact the other party to arrange for the deposit to be refunded?
If for some reason the tenant or landlord has lost the contact details and are unaware of the whereabouts of the other party, then they can apply to the Tenancy Deposit Protection Scheme for the deposit to be refunded.
The claim must be accomplished by information on the individual’s attempts to contact the other party and whether or not they would agree to using the Alternative Dispute Resolution Service if the other party was contactable and disputed the claim.
Are there alternatives to accepting a deposit?
The Housing Act 2004 does not recommend or require landlords or letting agents to accept a deposit, should they prefer to use an alternative.
A landlord may prefer to have a guarantor instead of a deposit, when letting out a property. By having a guarantor, the landlord ensures that if the tenant is unable to meet rent payments or other requirements of the tenancy agreement, the guarantor will do so.
It is essential that the landlord conducts the necessary credit checks and obtains references on the guarantor to ensure they are suitable and able to make financial payments if required. If a landlord decides to use a guarantor rather than taking a deposit, it is important that the agreement is comprehensive and binding. Often landlords and letting agents only accept guarantors who own their own property, so in the case of missed payments, a legal charge can be registered against the guarantor’s property.
Guarantors can resign from the agreement but must give a set period of notice. When using a guarantor the fixed term should be for the same length of time as the guarantee term. Once the fixed term comes to an end, it is possible to find another guarantor to cover the next fixed term of the tenancy agreement.
There are private companies who issue insurance policies for landlords renting private property. Insurance can be taken out to cover missed rent payments and tenants who fail to abide by the terms of the tenancy agreement.
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