Under the provisions of the United Kingdom Housing Act 2004 every landlord or letting agent that takes a deposit for an assured shorthold tenancy in England and Wales must join a tenancy deposit scheme. The new regulations came into effect from 6 April, 2007.
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It is common for landlords to take a dilapidation deposit from a tenant at the start of the tenancy. The deposit acts as a safeguard should the tenant cause any damage to the property. Some unscrupulous landlords are either very slow to return deposits at the end of the tenancy or make unfair deductions. The purpose of the new regulations is to ensure good practice in this area. The secondary purpose of the new regulations is to try and keep disputes between landlords and tenants out of the courts by encouraging alternative dispute resolution.
The tenant pays over the deposit (commonly one month’s rent) in the usual way when the tenancy agreement is signed. The landlord or letting agency has 14 days from receipt of the deposit to provide the tenant with details of the scheme that they are using (known as the prescribed information). If there is no dispute at the end of the tenancy the deposit will be returned to the two parties as agreed. If a dispute has arisen then the parties will be invited to make use of the alternative dispute resolution process that is provided free within the scheme. Should the parties opt for alternative dispute resolution they will be bound by its decision with no redress to the courts.
There are two types of scheme: insurance backed and custodial. Under insurance backed schemes the landlord or letting agency pays a premium to the scheme but retains the deposit. With custodial schemes the deposit is transferred to the scheme within the 14 day timescale and held in escrow.
In November 2006 three companies were awarded contracts by the UK government to run tenancy deposit schemes:
If a landlord or letting agent does not protect a tenant’s deposit and provide the tenant with the prescribed information within the 14 day timescale then they have no right to regain possession of their property under the Section 21 (notice only) instrument. If the tenant applies to court for the deposit to be protected and it is shown the landlord is not compliant with the scheme, then the court must order the landlord to pay the tenant three times the deposit amount within 14 days. Follow clarification in the Court of Appeal, a landlord that provides details of the deposit registration later than the required 14 days is not liable to pay the triple-deposit penalty.[1]
The new rules do not affect deposits taken before 6 April, 2007; however, if a landlord renews with the same tenant for a new fixed term the deposit must be protected.
In June 2008, a case came before the Court in Cardiff where the letting agent failed to protect the deposit. The landlord had to pay the tenants compensation equal to three times the deposit of £900 (total: £2,700 + costs) and also refund the original deposit in full. In Gloucester in March, a landlord was required to take the same action even though there were rent arrears.
Either a Landlord or a tenant may begin the claims process from 14 days after the end of the tenancy.[2] The first step in beginning a claim is to obtain a so-called Statutory Declaration by accessing the Landlord or tenant's online account, and starting the process using an online form. [2] Once a claim has begun, the dispute service in question makes contact with both parties notifying them of the dispute, and requesting any additional evidence, before the claim is referred to an alternative dispute resolution service, unless either party states that they do not wish to use the ADR service or notifies in writing that they wish to resolve the dispute in the county courts, or alternatively another dispute resolution service. [2]
There are a number of “no deposit” or “zero deposit” schemes in operation that are provided by insurance companies. These can offer landlords protection without having to take a deposit.