New rules governing tenancy deposits came into force from 6 April 2007. These affect most landlords involved in lettings. The aim of this legislation is to reduce the number of disputes at the end of a tenancy, and ultimately to promote a more professional private rented sector.
Failing to protect a deposit on a tenancy starting after 6th April 2007.
Tenancy Deposit Protection explained
From 6 April 2007, all deposits taken by landlords for Assured Short-hold Tenancies must be protected by a Tenancy Deposit Protection scheme. To avoid disputes going to court, each scheme will be supported by an alternative dispute resolution (ADR) service, whose aim is to make disputes faster and cheaper to resolve.
Deposit Protection and how it works
There are two types of scheme: a custodial scheme and two insurance based schemes. The landlord – not the tenant – will have the option to choose whether to safeguard the deposit in a custodial or an insurance-based scheme. A landlord will have 14 days to safeguard a deposit from the day he receives it. The landlord will then have to provide the tenant with prescribed information about the scheme within these 14 days. To avoid disputes going to court, both schemes will be supported by an ADR service – although the use of this will not be compulsory.
The difference between the custodial and insurance schemes.
If a landlord chooses the custodial scheme, then the deposit will be paid into a central fund which will hold it for the course of the tenancy. If a landlord chooses an insurance based scheme, then they will hold onto the deposit throughout the tenancy, but pay a premium to the insurer.
Running of the initial schemes.
The government has awarded contracts to three companies to run its tenancy deposit schemes;
Computershare Investor Services PLC will run the single custodial deposit scheme
Tenancy Deposit Solutions, a consortium of the National Landlords Association (NLA) and Hamilton Fraser Insurance Services PLC, will administer one insurance based scheme. This will be aimed primarily at individual landlords.
The Dispute Service Limited will look after the second insurance based scheme aimed at letting agents.
Failing to protect a deposit on a tenancy starting after 6th April 2007
If a landlord fails to safeguard the deposit on a new tenancy then they will be unable to use Section 21 of the Housing Act to gain ‘notice only’ possession of their property. In addition, should the tenant apply for a court order, the landlord can be fined up to three times the deposit amount.