Tenancy Deposit Schemes – Basic Guidelines

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Ever since the Government introduced The Housing Act 2004 to protect the tenancy deposits under the Tenancy Deposit Protection Scheme, there have been 3 companies awarded the rights to run two types of Tenancy Deposit Protection Schemes.  Both of these schemes apply to residential property being rented in England or Wales, no matter whether the landlord and/or managing agent operates overseas.  Theses schemes do not apply to commercial property, when rent would be greater than £25,000 or if the landlord is also a resident of the property.

Both types of Tenancy Deposit Protection Schemes are generally supported by some sort of call centre and some would have a way of performing on-line registration or paying for the deposit.  A deposit has been set out as any amount of money paid in addition to rent as security and would include fees for cleaning and amount added to the rent monthly as long as the tenancy deposit is not used for making repairs or paying expenses.

The Custodial Tenancy Deposit Scheme is a deposit held by the scheme in a separate account where the fees were funded by the accruing interest of the Tenancy Deposit or by the government if the interest rate was too low to generate enough interest.   Within this scheme there are two ways in which the deposit is handled.
Several tenants could each give a deposit and it would be designated as Room A, Room B, etc, or there can be one deposit representing all of the tenants.  A main tenant would be chosen for correspondence purposes, however if tenants chose to vacate at separate intervals, this plan would be extremely difficult to control as the deposit must be repaid in full.

The Insurance Based Tenancy Deposit Scheme is differentiated by the deposit being held by the landlord and/or managing agent and is secured by the landlord paying fees and an insurance premium to a Scheme administrator.  It would be the administrator’s duty to ensure enough insurance was in place in order to assure full repayment of the Tenancy Deposit.  Within this type of schemes there are two approved – one being “The Tenancy Deposit Scheme” which can be used by all landlords, however, since April 6, 2009 this scheme can only be used by regulated agents.  The second scheme is the “MyDeposits” (previously known as Tenancy Deposit
Solutions Ltd.) and is aimed more for the landlords.  It consists of a onetime fee plus additional fee for each tenancy deposit, as well as an annual renewal fee.

The penalties can be quite severe for landlords who don’t comply with the Housing Act, so understanding the necessary information is vital to all parties.   At the end of the tenancy agreement both parties will need to come to an agreement as to the amount of the tenancy deposit due as a return to the
tenant.  If both parties are in agreement, the tenancy deposit is required to be returned within 10 days.

If however there is a disagreement over the amount, the desired course
of action would be to go through the Alternative Dispute Resolution (ADR), rather than having to resort to the courts.

The Tenancy Deposit Schemes have been put into place to protect all parties, and it is the responsibility of both parties to understand what is required of them prior to entering into any sort of tenancy agreement.    As with any legal document you should always try to obtain legal advice prior to making a decision on which Tenancy Deposit Scheme you wish to venture into, as well as the tenancy agreement.