Rent (or tenancy) deposit protection schemes are designed to protect the deposit amount that tenants pay landlords when they move into a property. The deposit is supposed to be reserved for repairs to damage or replacement of lost (or stolen) items. It is also supposed to be returned to tenants when the tenancy ends. This is where a lot of tenants encounter problems, as some landlords don’t return the full amount, claiming expenses that the tenant might not agree with. The protection scheme gives tenants an opportunity to register a complaint if they disagree with the amount to be returned. The issue is settled by Alternative Dispute Resolution (ADR), and failing that, is settled in court.
By law, all landlords with assured shorthold tenancies must use a deposit protection scheme. But legal requirements don’t guarantee 100% compliance. According to a recent study by PropertyLetByUs, 70% of tenants doubt that their landlords have put their deposits in a protection scheme. Half of the respondents say that they have received confirmation (a legal requirement) of a deposit protection scheme. And to really underline the level of mistrust between tenants and landlords, 75% of tenants think that their landlords will want to keep the deposit in its entirety when the tenancy ends.
Why aren’t deposit protection schemes working?
According to Jane Morris, MD of PropertyLetByUs, lack of policing is one of the biggest problems. There’s little risk to landlords who flout the law. Fortunately, the government is aware of the problem and is looking at new measures that will improve protection for tenants.
A quick look at deposit protection schemes
Landlords (or letting agents) must place a deposit in one of three government-backed tenancy deposit schemes within 30 days of receiving the money.
The three approved schemes in England and Wales:
- Deposit Protection Service (DPS)
- Tenancy Deposit Scheme (TPS)
Scotland and Northern Ireland have separate schemes.
There are 2 types of rent protection schemes:
- Custodial. The scheme is responsible for the money. Tenants must fill in a form that confirms the amount agreed upon between both parties to get the deposit back. The scheme repays the money and a portion of the interest earned.
- Insured: Landlords keep the deposit and pay insurance to the scheme. Landlords repay the deposit directly to tenants at the end of the tenancy. In a dispute, landlords must pay the undisputed amount. The amount in dispute remains in the scheme until the matter is resolved.
Only landlords that belong to an approved professional association may use an insured scheme. Overseas-based landlords must use custodial schemes.
Landlords must provide tenants with documentary evidence of the deposit in the scheme, including:
- Full address of the rented property
- The deposit amount
- How is the deposit protected? (insured or custodial scheme)
- The name of the scheme. This includes contact details and the dispute resolution service provided.
- Landlord’s (or letting agent’s) full name and contact details
- Third-party name and contact details (if relevant)
- Conditions that allow retention of the deposit
- The application process for returns
- Procedure if the landlord is unavailable at the end of the tenancy
- Procedure in the event of a dispute
Repayment of the deposit depends on four factors:
- Whether tenants met the terms of the tenancy agreement
- Damage to the property
- Whether tenants have paid all their rent and bills
- If the inventory is the same before and after the tenancy period
Deposits aren’t docked for normal wear and tear. Tenants should document any items already worn or damaged when they move in. Landlords should acknowledge the evidence.
Repayment must occur within ten days of both parties agreeing on the amount.
The deposit remains in the scheme until the dispute is resolved. According to GOV.UK, tenancy deposit schemes offer free dispute resolution services, but the catch is that both parties have to agree to the process. Tenants should raise disputes as soon as possible.
Failure to protect the deposit
Tenants can take landlords who don’t use a deposit protection scheme to court. Experts highly recommend they get legal advice first. If the court finds in the tenant’s favour, landlords must o repay the deposit sum, or repay up to 3 times the deposit amount, within 14 days. Alternatively, landlords must pay the deposit into a custodial protection scheme within 14 days.