Historically, deposits have caused significant friction between landlords and tenants. There was no legal protection in place, which meant that landlords could easily withhold money from the deposit at the end of the tenancy, citing ‘wear and tear’ as the reason for doing so.

The deposit protection scheme was introduced to resolve this issue. This compulsory scheme affects both tenants and landlords – here’s what you need to know about it.

What is a tenancy deposit scheme?

Since 2007, landlords have been legally obliged to place their tenant’s deposit in a TDP – or Tenancy Deposit Protection scheme. These schemes are run by government-approved companies who manage the process of returning deposits, working out deductions, and dealing with disputes. This ensures that the deposit is protected throughout the tenancy, and that money can only be deducted if approved by the TDP scheme.

There are three schemes for landlords to choose from in England and Wales – the Deposit Protection Service, MyDeposits, or the Tenancy Deposit Scheme.

Types of tenancy deposit scheme

There are two types of TDP, which are:

Custodial

With a custodial TDP, landlords place the whole deposit into a scheme, where it remains for the duration of the tenancy. Once the contract has ended, the deposit is returned in full (unless the landlord has requested to withhold money to cover any damages etc.).

Insurance

In this instance, it’s the landlord who looks after the deposit, but they’re not permitted to use the money. At the end of the tenancy, if there’s a dispute, they must pass the disputed sum of money to a protection scheme. In order to use an insurance-based scheme, landlords must pay a fee.

Key things to note about TDPs

The following list covers the legalities associated with a tenancy deposit scheme:

• The landlord has 30 days (after the contract is signed) to pay the deposit into a government-backed scheme.
• They must tell the tenant which scheme they used, within 30 days of the receipt of the deposit.
• Deposits are usually equivalent to one month’s rent and has been capped to a maximum of five weeks rent.
• A TDP isn’t required for any deposit received before the tenancy contract is signed.
• Letting agents are legally allowed to handle the deposit on behalf of the landlord. Indeed, this is fairly standard practice, especially if the landlord has hired a letting agency to handle the management of their property.
• The landlord has 10 days to pay back the deposit at the end of the tenancy, once the amount has been agreed.

What happens if there’s a dispute?

Surprisingly, there’s no legal requirement for an inventory. This makes it difficult to ascertain if the property (or its fixtures and fittings) have been damaged, once the tenant is ready to move out.

As such, disputes do still occur. The TDP scheme has a resolution service, and it’s their job to review the situation and recommend a way forward. It’s important to note that landlords cannot expect the property to be in the exact state it was before the tenant moved in. However, it’s not unreasonable for them to request deposit money to cover significant repairs, or pay any outstanding bills.

What are the benefits for the tenant?

The tenancy deposit scheme provides valuable protection for tenants. The main benefits include:

• Reduced likelihood of losing money. The law states that a tenant’s deposit must be protected by a government-approved company. This means landlords can no longer withhold significant sums of money, unless they’ve got a valid reason to do so. That’s excellent news for renters, as they can use the deposit to put towards their next property.
• Landlord’s responsibility. The tenant is not responsible for placing the deposit in the scheme – that responsibility falls squarely on the landlord. In fact, all the tenant has to do is pay the deposit in a timely manner; they don’t need to worry about it again until the tenancy is over.
• Money is protected, regardless of who pays it. It doesn’t matter who pays the deposit; the money is still legally protected. So, even if parents or grandparents provide the funds, they can still enjoy the same level of financial security.

What are the benefits for the landlord?

There are advantages for landlords too, which include:

• More legal guidance. In the past, deposits were always a ‘grey area’, with few landlords sure about how much to pay back at the end of the tenancy. Now, the guidelines are far clearer.
• Legal support in the event of a dispute. If a dispute does arise, landlords now have the support of a TDP, via their resolution service. That means, if requesting deposit money that’s rightfully theirs (i.e. to cover damage to the property), the law will support their claim.
• Letting agents can manage the process. Letting agents are legally permitted to place deposits into a scheme, on behalf of the landlord. This makes it an entirely hassle-free process.

Frequently asked questions

Who decides if any deposit money is withheld at the end of the tenancy?

If the landlord claims that money from the deposit is required to pay for damages, the following may happen:

• The tenant agrees to pay the money from the deposit
• The tenant disagrees, and starts the dispute process with the TDP
• The tenant disagrees and the case escalates, resulting in a court order

In most cases, the tenant and landlord usually come to an agreement, or the matter is resolved quickly with the help of the TDP’s adjudicator.

Can a landlord just withhold money?

No, the law now prevents them from doing so. If they want to keep some / all of the deposit, they have to notify the tenant in writing.

Is an inventory a good idea?

An inventory, though not a legal requirement, is an excellent way to prove the state of the property (and its fixtures and fittings) at the start of the tenancy. This can be used for comparative purposes, if the landlord requests some of the deposit money to make repairs.