Under the Housing Act 2004 the government is required to introduce mandatory universal Tenancy Deposit Protection. Tenancy Deposit Protection will apply to all 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 so should be aware that should the tenant damage the property or not pay the last months 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 register 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 be used to offer interest to the tenant or the landlord depending on the terms of the tenancy agreement. This scheme is free for landlords agents and tenants.
At the end of the tenancy if the landlord and tenant agree how the deposit is 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 Services 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 Scheme
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 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 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 of 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 the dispute.
In the insurance-based scheme where the landlord is in contact with the scheme but 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 for the tenant.
Failure to Comply
If a landlord fails to comply with new legislation by not protecting the tenants deposit the landlord is unable to retain possession of the property using the usual Section 21 notice if the deposit has not been safeguarded and the prescribed information passed on to 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 deposit x 3 = 1800
Department of Communities and Local Government
Website: http://www.communities.gov.uk/
Custodial scheme website: http://www.depositprotection.com/
Insurance scheme websites: http://www.tds.gb.com/ & http://www.mydeposits.co.uk/
TENANT DEPOSIT PROTECTION SCHEME FACTS FOR THE TENANTS
Under the Housing Act 2004 the government is required to introduce mandatory universal tenancy deposit protection. Tenancy Deposit Protection will apply to all shorthold tenancies in England and Wales where a deposit is taken. Virtually all new contracts to let a property are assured shorthold tenancies.
The landlord/agent not the tenant will have the option to choose whether to safeguard the deposit in the custodial or insurance-based scheme.
Your landlord/agent will provide you the prescribed information outlining which scheme your deposit has been safeguarded with.
There will be two types and it will be up to your landlord to choose which one they want to join. One type of scheme will be a custodial scheme and the other will be insurance-based. The main difference will be that:
In the custodial scheme your landlord will pay the deposit into the scheme and the scheme will look after it.
In an insurance-based scheme your landlord will keep the deposit but will have to pay insurance to the scheme.
The Government has protected tenants deposits so that when a tenant pays a deposit and he/she is entitled to get all or part of it back the tenant can be assured that this will happen.
If the tenant vacates the property before realising that the deposit hasnt been protected the tenant can apply for a court order and the court will order the landlord to repay the deposit amount to the tenant.
In order to avoid this situation tenants need to make sure that their landlord has given them the prescribed information relating to the scheme that is safeguarding their deposit and check that the deposit is safeguarded within 14 days of paying the deposit.
The legislation will only apply to new deposits against ASTs entered into on or after 6th April 2007. Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme.
If the tenant decides to remain in their existing rented property beyond the fixed term of six months how the deposit is treated will depend on how the tenancy is continued:
Periodic tenancy i.e. the tenancy continues with no new agreement - Tenant Deposit Protection will not apply as no new Assured Shorthold Tenancy will have been created.
Renewal Tenancy i.e. a new AST is created between the same landlord and tenant for the same property on substantially the same basis - Tenant Deposit Protection will apply to the initial deposit that was paid prior to 6th April 2007. Therefore the landlord/agent must register the deposit within 14 days of the new AST.
Tenants whose deposit has been registered with an insurance based scheme must make their best endeavours to inform their letting agent if they wish to raise a dispute about the deposit within 20 working days after the lawful end of the tenancy and vacation of the property unless a different period is specified in the tenancy agreement.
For further information please contact:
Department of Communities and Local Government
Website: http://www.communites.gov.uk/
Custodial scheme website: http://www.depositprotection.com/
Insurance scheme websites: http://www.tds.gb.com/ & http://www.mydeposits.co.uk/