As of 6 April, landlords who take deposits when granting assured shorthold tenancies must ‘protect’ those deposits through participation in one of three Government approved schemes.

According to Government estimates, the average deposit paid is £700. In 2005/06 11 per cent of tenants did not get their deposit back and barely one in five received the whole amount back. Recent Government surveys concluded that 17 per cent of tenants believed all or part of their deposit had been withheld unfairly.

Where damage has been done to a rented property it is absolutely right that the cost of repairing that damage is taken from the deposit funds. But, where no damage has occurred, keeping hold of this money is unfair, said the Government explaining why it had introduced deposit protection.

‘The vast majority of landlords and agents act fairly and take their responsibilities seriously’, conceded Communities Secretary Ruth Kelly. ‘However, there are a minority pocketing deposits and profiteering from other people's money. This is completely unacceptable. The new rules will inject greater fairness into the rental market and mean that when a tenant sticks to the rules, the landlord/agent must too.

‘With the average deposit coming in at around £700, we are talking about significant amounts of money. People hand over deposits in good faith and rely on getting their money back in order to move on to their next property. It is not right that under the current system lack of protections and lengthy, costly arbitration procedures mean that thousands of tenants end up waving goodbye to their cash. The changes we have made will put an end to this’.

From 6 April Landlords and agents taking deposits will, by law, have to sign up to one of three schemes that have been awarded contracts by the Government:
• The Deposit Protection Service (The DPS) - a custodial scheme where landlords must hand over the deposit in full. Free to use and open to all Landlords and Letting Agents the DPS service is funded entirely from the interest earned from deposits held. If a dispute arises between the landlord and the tenant at the end of the tenancy the scheme will hold the amount until the dispute resolution service or courts decide what is fair.
• Tenancy Deposit Solutions Ltd (TDSL) is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits on payment of a membership fee and deposit fee.
• The Tenancy Deposit Scheme (TDS) is an insurance backed deposit protection and dispute resolution scheme run by The Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the lettings industry. The new scheme enables letting agents and landlords to hold deposits.

Deposits are protected by one of the two insurance based schemes and the landlord and tenant disagree on what should be paid back, the landlord or agent 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.

Tenants who have not been notified by their landlord within 14 days of how their deposit is being protected will be able to apply to the courts, who can direct the landlord or agent to pay three times the deposit back to the tenant.

Each scheme will also include a free, Alternative Dispute Resolution (ADR) service.

Once the tenancy has finished the deposit must be paid back within 10 days so long as both parties agree on the figure. If a dispute arises the landlord or agent and tenant can use the independent resolution service. It is completely free of charge with any interest accrued from the deposits being used to fund it. Any extra money will be put back into the central fund and used for payments to landlords or tenants. There has been a wide range of support for the changes that are being introduced.


• Residential Landlord has teamed up with LetCare to create a viable alternative for landlords who want to avoid the cost, administrative hassle and cost of participating in a deposit protection scheme. Free to landlords, the Tenant Guarantee Scheme (www.iguarantee.co.uk) allows them to accept tenants without taking a deposit but with the benefit of insurance cover that puts them in a better position. Full details will be available in the next few days.