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New Tenancy Deposit Protection Rules

From 6 April, new tenancy deposit law gives more protection to tenants by preventing landlords or letting agents from taking a deposit in respect of an assured shorthold tenancy unless it is covered by a Tenancy Deposit Protection Scheme. The legislation aims to put an end to the problem caused by unscrupulous landlords who fail to return deposits at the end of a tenancy. It will not only safeguard tenants’ deposits but will also facilitate the resolution of any disputes over the return of deposits.

There are two different types of scheme.

Custodial Schemes
Under custodial schemes, the tenant pays the deposit to the landlord who is then required to pay the whole of this amount into a designated scheme account. The scheme administrator will hold the deposit until it is paid to the tenant or landlord, in accordance with their agreement or following a court order, after the tenancy has ended.

Insurance-Based Schemes
Under insurance-based schemes, the landlord retains the deposit and this is only transferred into a scheme if there is a dispute with the tenant at the end of the tenancy. The scheme will then hold the deposit until the dispute is settled. When the tenant and landlord reach agreement, the administrator will distribute the deposit amount to the relevant party. The scheme will need to pay the tenant regardless of whether the landlord has transferred the deposit to the scheme as required. The landlord pays a premium in order to belong to an insurance-based scheme.

Both types of scheme provide a free alternative dispute resolution service so that those involved can try to resolve disputes without resorting to the courts.

Landlords and letting agents must:

• deal with the deposit in accordance with an authorised scheme;
• comply with the initial requirements of the scheme within 14 days; and
• provide the tenant with the appropriate information relating to the deposit within 14 days of receiving the deposit.

Until this is done, the landlord will not be able to regain possession of the property using the usual ‘notice only grounds’ for possession. Under Section 21 of the Housing Act 1988 a landlord can obtain an order for possession of an assured shorthold tenancy at any point after the first six months of the tenancy, providing any fixed term has expired and they give the tenant at least two months’ written notice.

If a landlord or agent has not arranged for a deposit to be dealt with in accordance with a scheme or provided the tenant with the relevant information within 14 days of receiving the deposit, the tenant can apply directly for a court order for the deposit to be repaid to them or paid into a custodial scheme. If the landlord has failed to comply with these provisions by the date of the court hearing, the court must make the order as requested and order the landlord to pay the applicant an amount equivalent to three times the deposit within 10 days.

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