Tenant Deposit Schemes (TDS)

From 6 April 2007, new rules will apply to all new assured shorthold tenancies (ASTs). They place a duty on landlords and letting agents to belong to a statutory Tenancy Deposit Scheme (TDS) if they take a deposit from tenants for an AST.

As a landlord you must provide the tenant with the contact details of the scheme protecting their deposit.

You will be able to choose between two types of scheme: a single custodial scheme and two insurance-based schemes.  On a personal level, we have opted to use the Custodial scheme for the following reasons:

• The premiums on insurance schemes offered were unacceptably high and our view was that unscrupulous landlords would ensure that these would continue to rise
• We believe that by ensuring we have robust legal documentation in place and clear evidence of the condition of the property at the outset we will be adequately protected.

Custodial scheme

• The tenant pays the deposit to the landlord;
• The landlord then pays the deposit into the scheme;
• Within 14 days of receiving a deposit, the landlord must give the tenant the prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties;
• If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair;
• The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus be used to offer interest to the tenant, or landlord if the tenant isn’t entitled to it.

Insurance-based schemes

• The tenant pays the deposit to the landlord;
• The landlord retains the deposit and pays a premium to the insurer - the key difference to the custodial scheme;
• Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information (to be set out in secondary legislation) about the scheme being used and the tenancy;
• At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord 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.

Example

A tenant pays a deposit of £1000. At the end of the tenancy, the landlord says he wishes to keep £200 to pay for replacing damaged furniture. The remaining £800 will be returned to the tenant.

The tenant disagrees, claiming the furniture was damaged when they moved in. Both agree to go to Alternative Dispute Resolution (ADR), so the disputed £200 will be transferred to the scheme administrator until the dispute is settled.

In each scheme, the deposit must be returned within ten days of the landlord and tenant agreeing how the deposit should be divided, or within ten days following notification of an ADR/court decision.

Who will run the schemes?

The Government awarded contracts to three companies to run its tenancy deposit schemes on 22 November 2006.  The three schemes are:

• The Deposit Protection Service (The DPS) - the only custodial deposit protection scheme – is free to use and open to all Landlords and Letting Agents. The service is funded entirely from the interest earned from deposits held. Landlords and Letting Agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme will be supported by a dedicated call centre and an independent dispute resolution service.  For more information, visit www.depositprotection.com or call 0870 707 1707.