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Tenancy deposit scheme (England and Wales)

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Under the provisions of the United Kingdom Housing Act 2004 every landlord or letting agent that takes a deposit for an assured shorthold tenancy in England and Wales must join a tenancy deposit scheme. The new regulations came into effect from 6 April 2007, and were amended by the Localism Act 2011, taking effect from 6 April 2012.

Reasons for introduction

It is common for landlords to take a dilapidation deposit from a tenant at the start of the tenancy. The deposit acts as a safeguard should the tenant cause any damage to the property. Some unscrupulous landlords are either very slow to return deposits at the end of the tenancy or make unfair deductions. The purpose of the regulations is to ensure good practice in this area, and try to keep disputes between landlords and tenants out of the courts by encouraging alternative dispute resolution.

Description

The tenant pays over the deposit (commonly one month’s rent) in the usual way when the tenancy agreement is signed. The landlord or letting agency has 30 days from receipt of the deposit to provide the tenant with details of the scheme that they are using (known as the prescribed information). If there is no dispute at the end of the tenancy the deposit will be returned to the two parties as agreed. If a dispute has arisen then the parties will be invited to make use of the alternative dispute resolution process that is provided free within the scheme. Should the parties opt for alternative dispute resolution they will be bound by its decision with no redress to the courts.

There are two types of scheme: insurance backed and custodial. Under insurance backed schemes the landlord or letting agency pays a premium to the scheme but retains the deposit. With custodial schemes the deposit is transferred to the scheme within the 30 day timescale and held in escrow.

Schemes

In November 2006 three companies were awarded contracts by the UK government to run tenancy deposit schemes:

  • The Tenancy Deposit Scheme (TDS), an insurance-backed scheme. [1] [2]
  • Mydeposits, an insurance-backed scheme. [3]
  • The Deposit Protection Service (The DPS), a custodial scheme. [4]

Enforcement

If a landlord or letting agent does not both protect a tenant’s deposit and provide the tenant with the prescribed information within 30 days then they have no right to regain possession of the property under a Section 21 notice, unless the deposit is first repaid or, arguably, the deposit is protected and the prescribed information are provided to the tenant before the service of the Section 21 notice.[1]

If the tenant applies to court for the deposit to be protected and it is shown the landlord is not compliant with the scheme, then the court must order the landlord to pay the tenant up to three times the deposit amount within 14 days.

The rules do not affect deposits taken before 6 April 2007; however, if a landlord renews with the same tenant for a new fixed term the deposit must be protected.

Pre-2012 cases

  • Tiensia v Vision Enterprises Ltd[2] - deposit registered after 14-day deadline
  • Gladehurst Properties Ltd v Hashemi - deposit never registered during tenancy
  • Draycott v Hannels - deposit registered after 14-day deadline
  • Harvey v Bamforth - deposit registered within 14 days but information not provided

The defences in these cases are affected by the Localism Act 2011, which made the following changes to the law affecting deposit registration:[3]

  • Deadline for registration and providing prescribed information changed from 14 to 30 days following payment of the deposit
  • Penalties for non-compliance apply even if the registration is done late
  • Grants the court discretion to award 1x to 3x the deposit amount as a sanction, instead of 3x in all cases
  • The penalties for non-compliance apply even once the tenancy has ended

Claims process

Either a Landlord or a tenant may begin the claims process from 14 days after the end of the tenancy.[4] The first step in beginning a claim is to obtain a so-called Statutory Declaration by accessing the Landlord or tenant's online account, and starting the process using an online form.[4] Once a claim has begun, the dispute service in question makes contact with both parties notifying them of the dispute, and requesting any additional evidence, before the claim is referred to an alternative dispute resolution service, unless either party states that they do not wish to use the ADR service or notifies in writing that they wish to resolve the dispute in the county courts, or alternatively another dispute resolution service.[4]

Localism Act 2011

The Housing Act left open a loophole for landlords and letting agents. Although there was a penalty for not protecting the deposit or issuing prescribed information, there was no penalty for not doing so within the original 14 day limit. To close this loophole, the Localism Act 2011 extended the time limit for protecting tenancy deposits from 14 to 30 days, and this limit became absolute. Therefore, on the 31st day after the payment of the deposit money to the landlord the tenant can make an application to the court if the money has not been protected and the prescribed information given. Even if the deposit is registered or the prescribed information is given at any time after the 30 day window the tenant still has a right to make a claim. The claim will be for the return of the full sum of the deposit along with a penalty of between one and three times the sum of the deposit, to be awarded at the discretion of the Court. Tenants can also now make an application to a county court for a penalty award after the tenancy has ended.[5]

Alternatives

There are a number of “no deposit” or “zero deposit” schemes in operation that are provided by insurance companies. These can offer landlords protection without having to take a deposit.

See also

References

  1. ^ "The Tenancy Deposit Regulations".
  2. ^ "Tiensia v Vision Enterprises Ltd (t/a Universal Estates) [2010] EWCA Civ 1224".
  3. ^ "Section 184: Tenancy deposit schemes, Explanatory notes".
  4. ^ a b c Deposit Protection Service Retrieved October 2011
  5. ^ The Tenancy Deposit Scheme http://www.tds.gb.com/resources/files/The%20Housing%20Act%202004%20and%20the%20changes%20introduced%20by%20the%20Localism%20Act%202011.pdf
The Wikibook UK Housing Law has a page on the topic of: Tenancy Deposit Scheme

Government

Trade groups

Campaigns

Articles

Alternatives

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