Tenancy Deposit Schemes

A common complaint by tenants of residential properties is that landlords unreasonably withhold part or the whole of the deposit when it’s  time to move out or even fail to safeguard the deposit and claim to have insufficient funds to repay the deposit. Conversely, landlords often find that tenants move out, refuse to pay the final month’s rent and forfeit the deposit. When the landlord subsequently inspects the property there is damage, leaving the landlord out of pocket. New legislation which came into force on 6th April 2007 regulates how landlords of an Assured Shorthold Tenancy (AST) hold tenant’s deposits in an attempt to resolve these issues.

Under the new legislation, where a deposit has been paid by a tenant at the commencement of an AST, landlords will be required to join a Tenancy Deposit Scheme (TDS). (The majority of residential tenancies today are ASTs). There will be two types of scheme on offer: a custodial TDS, where the deposit is paid into a separate, designated bank account run by the scheme administrator; or an insurance TDS, where the landlord holds the deposit but agrees to certain obligations with the scheme administrator including taking out insurance to protect the deposit.

In the event of a dispute over the deposit at the end of the term of the AST, then either the landlord or the tenant may apply to the TDS administrator outlining the basis of their claim. If the claim is not accepted by the other party then the matter will move to dispute provided both parties agree. Where consent is not received by both parties, then the aggrieved party would be able to issue court proceedings, as in the current system.

Landlords should ensure that they are aware of the new rules, as potential sanctions against landlords who fail to comply with the legislation include fines, payable to the tenant, of up to three times the value of the deposit and/or prevention of the landlord from recovering possession of the property.

April 2007