Tenancy Deposit Scheme Essentials

In 2004 the Housing Act required all landlords and agents who take a deposit from a Tenant under an Assured Shorthold Tenancy (AST) to protect that deposit with one of the Government's authorised tenacy deposit protection schemes.

These schemes have been authorised and set up to ensure that Tenant's deposits are paid back when tenants are entitled at the end of their occupancy.

There are two types of TDP schemes:

• Custodial Schemes: The Landlord or Agent passes the deposit to the Scheme to hold until the end of the AST.

• Insurance based Schemes: Landlords or Agents hold the deposit themselves. A fee is paid to the Scheme to protect the Tenant's deposit. If a dispute is raised by the Tenant the Landlord or Agent must lodge the disputed amount with the scheme until the dispute is resolved.

Landlord's Responsibilities

There is certain prescribed information that the Landlord has to provide to the tenant within 14 days of the deposit being received. This is critical and the failure of the Landlord to provide this information can have serious consequences in any dispute.

The information that is required is as follows:

The landlord or agent must give the tenant the details about how their deposit is protected including:

• the contact details of the tenancy deposit scheme selected
• the landlord or agent's contact details
• how to apply for the release of the deposit
• information explaining the purpose of the deposit
• what to do if there is a dispute about the deposit

The Landlord always has personal responsibility in the end for the return of the deposit regardless of whether they use an Agent or not. Therefore Landlords should be very careful about the Agent they appoint because any failure on their part to maintain the deposit could cost the Landlord dearly.

It is a common law principle that the acts and omissions of the Agent are treated as the acts and omissions of the Landlord. The Landlord must take responsibility for the return of the deposit of the Agent defaults for any reason.

In my time as a Landlord I have had three Agents become insolvent and end up not paying me all the money I was due, so this is a real matter for careful consideration.

If the Landlord fails to protect the deposit or failed to provide the Prescribed Information to the tenant the court may:

• Order the Landlord to repay the deposit to the Tenant within 14 days, and
• Order the Landlord to pay the Tenant a sum of money equal to three times the deposit within 14 days!

This is not an idle threat. I have a friend who owns a couple of rental properties and was late in providing the prescribed information to her tenant. She has been fined by the court!

How Can A Landlord Protect Themselves Against a Defaulting Agent?

If a Landlord permits his Agent to hold the deposit, they should undertake independent financial checks and satisfy himself that the Agent is trustworthy and financially sound. These checks make a great start:

• Does the Agent hold the deposit and rent monies in a segregated and ring-fenced Client Money Account? Ask for evidence of this bank account and how it operates in writing, preferably direct from the bank.
• Is the letting Agent a member of a letting Agent association that has a Client Money Bonding Scheme in place? Ask for evidence of this.
• Does the Letting Agent hold Client money protection insurance? Ask for evidence.

We recommend that you check these things on a periodic basis as the letting Agent's association membership or insurance cover may lapse at any time - in fact it is most likely to lapse just at the time it is most needed!

What Happens At The End Of The Tenancy

There are now prescribed processes and time limits for dealing with the return of the tenants deposit and for any disputes that arise. The tenants have up to 3 months after the end of the tenancy to raise a dispute  -so don't assume that because a dispute has not been registered when a tenant leaves the property there won't be one!

Want To Know More?

The official government site has a wealth of information on TDS.

http://www.direct.gov.uk/en/TenancyDeposit/DG_066383

Rod's View

This legislation is important for Landlord's to get right. If you don't the penalties can be severe. And in the event of a dispute if the Landlord has not followed the correct procedures it can badly prejudice your case.

Do you have experience of dealing with tenants deposits - for good or bad? Let us have your comments below.

Live with Abundance

Rod Thomas FCA

Posted in Letting and Managing

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