Deposit Protection

Under the Housing Act 2004, the government is required to introduce mandatory, universal tenancy deposit protection. Tenancy Deposit Protection will apply to all assured shorthold tenancies in England and Wales where a deposit is taken. Virtually all new contracts to let a property are assured shorthold tenancies.

Under the Housing Act 2004, It is not mandatory to take a deposit. A landlord can make the decision not to take a deposit to avoid the scheme, but in doing should be aware that should the tenant damage the proprety or not pay the last month's rent recovery of these losses can only be made through the county court.

The landlord/agent, not the tenant, will have the option to choose whether to safeguard the deposit in the custodial or insurance-based scheme.

Custodial Deposit Scheme:
Under the Custodial scheme the tenant pays the deposit to the landlord or agent who then pays the deposit into the scheme. Within 14 days of receiving a deposit, the landlord or agent must registered the deposit and give the tenant information about the scheme being used. The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will used to offer interest to the tenant, or the landlord depending on the terms of the tenancy agreement. This scheme is free landlord, agents and tenants.

At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord/agent will inform the scheme, which will return the deposit, divided in the way agreed by both parties. However, if there is a dispute, the scheme will hold the amount until the Dispute Resolution Service or courts decide what is fair. The deposit must be returned within 10 days of the end of the tenancy provided the landlord and tenant have agreed the amount.

Insurance based Deposit Schemes:
Under Insurance based scheme tenant pays the deposit to the landlord who retains the deposit and any interest earned on the deposit subject to the terms of the tenancy agreement and pays a premium to the insurer. Currently, the cost of using this scheme will be borne by the landlord or the letting agent in terms of both the annual fee. As with the custodial scheme within 14 days of receiving a deposit, the landlord must register the deposit and give the tenant information about the scheme being used. There are to be two insurance based schemes.

At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord/agent returns all or some of the deposit. If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved. If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Alternative Dispute Resolution Services:
To avoid disputes having to go to the courts, both schemes will be supported by an Alternative Dispute Resolution (ADR) service - although the use of this will not be compulsory. A dispute at the end ot the tenancy can be referred to the ADR service provided both parties agree to be bound by the ADR decision. If either party does not agree to use the ADR service, the option of referring the dispute to the courts will remain. The ADR service will be impartial and evidence based.

In the custodial scheme, where a landlord or tenant does not co-operate to release the deposit, for example, by not agreeing to the release of full or part of the deposit and do not agree to resolve the dispute through ADR or a court action, then ADR will be the default way in which to resolve a dispute.

In the insurance-based scheme, where the landlord is in contact with the scheme but is refusing to co-operate with the scheme in terms of choosing ADR or the courts, it will be mandatory for the case to be referred to the scheme for resolution through its ADR service. The same would not seem to apply to a tenant.

Failure to comply
If a landlord fails to comply with new legislation by not protect the tenant's deposit the landlord is unable to regain possession of the property using the usual Section 21 notice, if the deposit has not been safeguarded and the prescribed information passed onto the tenant within 14 days of the landlord receiving it.

Tenants can apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to him about the scheme in which the deposit is safeguarded.

Where the court believes that the landlord has failed to comply with these requirements, or the deposit is not being held in an authorised scheme, the court must either order the landlord within 14 days of the order being made, to repay the deposit or order the landlord to pay the deposit to the custodial scheme administrator.

In addition, the court must also order the landlord to pay to the tenant a fine of three times the deposit amount within 14 days of the making of the order. For example, £600 rent x 3 = £1,800.

For more information on all our Landlord Services
please contact us by phone: 020 7272 9988
or: landlords@aristonproperty.co.uk

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