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Deposit Protection Scheme Management

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), provides an insurance-backed scheme and a custodial scheme
  • Mydeposits, an insurance-backed scheme and a custodial scheme.
  • The Deposit Protection Service (The DPS), a custodial scheme.

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