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Tenancy Deposits

Since 2007 new rules have been in force for taking and holding tenant’s deposits.

Failure to comply can affect the right to regain possession AND lead to an order for the deposit to be paid into a scheme or to the tenant with a fine of up to three times the amount of the deposit.

Disputes over retentions at the end of a tenancy will go to arbitration and certain documents MUST be attached to the landlord’s claim.

This means the correct documentation MUST be in place at the beginning of the tenancy.

If you as a landlord take and/or hold a deposit from a tenant you must belong to a tenancy deposit protection scheme with a few exceptions. If your letting agent takes and /or holds such a deposit on your behalf that agent must register with such a scheme.

There are two types of scheme –

1. A custodial scheme where the deposit is paid to the custodian; or
2. An insurance backed scheme where the agent/landlord holds the deposit.

There are two approved insurance backed schemes to choose from –


1. Tenancy Deposit Solutions Limited; and

2. The Tenancy Deposit Scheme run by The Dispute Service.

The custodial scheme is free; the insurance schemes are not.

The custodian scheme, The Deposit Protection Service (DPS)
with a website at www.depositprotection.com, is run by a company that has done the same in Australia. DPS is to be funded by the interest earned on the deposits.

There are no preconditions or assessments for membership and it is open to letting agents and landlords alike.

For insurance-based schemes the procedure is slightly different-

• Tenant pays deposit to landlord or letting agent
• Landlord retains the deposit and pays premium to insurer
• Prescribed information given to tenant within 14 days of receipt of deposit
• At end of tenancy, if the landlord and tenant agree on how the deposit should be divided the landlord returns the agreed sum to the tenant
• In the event of a dispute any undisputed amount is returned to the tenant and the balance is handed over to the scheme for safe keeping until a decision of ADR or court proceedings is reached.

If the landlord fails or refuses to comply the insurance arrangements come into play to ensure that the tenant receives back the deposit or that part of it to which he or she is entitled.

Safety for deposits

  • this is important to both landlord and tenant
  • most important of all is that the agent you choose places the deposit money in ways authorised by law
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