Tenants' deposits: what you need to know

The law has required landlords to place tenants’ deposits into government-backed tenancy deposit schemes since April 2007.

The scheme was introduced to ensure tenants are treated fairly regarding the return of their deposit after some unscrupulous landlords held on to deposits when there was no damage to be compensated for.


How does it work?

Tenants pay their landlord a deposit (usually one month’s rent) as security in case of any loss or damage that happens to the property or its contents during the rental period.

Once a tenancy agreement’s signed the landlord has 30 days to put the deposit into a scheme.

At the end of the tenancy the landlord has 10 days to return the deposit once they’ve agreed with the tenant on the final amount due back.

If tenants are in dispute with landlords, then their deposits will be protected in the TDP scheme until the issue is sorted out.

In the tenancy agreement the landlord has to tell their tenant:

  • How their deposit will be protected
  • The name of the deposit protection service being used
  • The landlord’s name and address
  • Why any portion of the deposit would be kept
  • Where to go to retrieve the deposit at the of tenancy
  • Who to talk to if there’s a dispute

The deposit protection scheme works in one of two ways. The tenant will agree to pay the landlord a deposit which will then be held on behalf of both of them by a Custodial provider – the two government approved tenancy deposit schemes which work in this way are TDS Custodial and the Deposit Protection Scheme’s (DPS) custodial option.

The scheme is essentially a bank account that cannot be accessed by the landlord or tenant and the money is only paid back to the tenant when both agree on final deductions.

Landlords tend to favour the custodial option because it is free to use.

Alternatively, there are Insurance Tenancy Deposit Schemes.

This is where the property's landlord keeps the tenant’s deposit but also pays a fee so that if the landlord decides to keep the deposit for any reason, an insurer will pay the tenant back their original amount.

The insurer will then try to retrieve the full amount from the landlord afterwards.

There are many deposit protection schemes available in the UK but TDS and DPS along with MyDeposits (which can be either custodial or insured) are the only three schemes that are government approved, with the funds they hold protected by law.

Both options make provisions for third party involvement if neither the tenant nor the landlord can agree on how much deposit should be returned.

The deposit scheme has saved lawyers countless hours (and associated costs) as disputes are most often resolved quickly and out of court.

There's no option for a landlord not to use a deposit protection scheme in the UK.

If they don’t, tenants can apply for a court order where landlords have 14 days to return the original deposit paid, or pay it into a scheme.

Landlords who don't comply can then be asked to pay three times the value of the original deposit back to the tenant.

Whether you're a landlord or a tenant, the best way to avoid having any kind of dispute over tenancy deposits is to be crystal clear about everyone’s expectations from the very start.


Providing an inventory


There's no legal requirement to have an inventory or any proof of the condition of the rental property and its contents when tenancy begins, but it's highly recommended.

If new furniture has been supplied or if the property has been deep-cleaned for the start of a new tenancy, it’s worth noting, especially if it’s expected that the property and its furniture should be left in the same condition.

Tenants don’t need to wait for their landlords to provide an inventory either.

They can make their own, as long as both parties then agree on what it says.

Photographs at the start and the end of the rental agreement are also useful, particularly if third parties become involved in the case of a dispute.

As in any relationship, it helps to keep on good terms.