Tenancy Deposit Scheme

Industry Insight September 27th, 2019
Tenancy Deposit Scheme

The Tenancy Deposit Scheme applies to all deposits for Assured Shorthold Tenancies (ASTs) and its main functions are to protect deposits and help resolve disputes. Deposits are usually four or five weeks rent, and from 1st June 2019, five weeks’ rent was set as a tenancy deposit maximum.  However, this does increases to six weeks for properties whose rent exceeds £50,000 per year.

How was it introduced

The Housing Act 2004 was designed to:

  • Safeguard tenancy deposits in a government authorised scheme; and
  • Give tenants access to a free dispute resolution service if they were unable to agree with their property manager/lettings agent on a deposit return

From 6 April 2007 these new requirements came into force as the Government approved Tenancy Deposit Scheme was established. The Tenancy Deposit legislation in England and Wales was not originally applied to deposits before 6 April 2007, but consequently became a legal periodic tenancy.

Types of TDS

There are two categories of schemes;

  1. Custodial: this is when the scheme holds the deposit during the time of the tenancy and was launched on 1st April 2016. The custodial scheme is entirely free of charge and there is no membership, this makes it easier and affordable for everyone. The scheme can be joined online which makes it easily accessible and allows deposits to be placed straight away.
  2. Insurance backed: this is when you hold the tenants deposit during the time of the tenancy. However, you need to return it to the scheme at the end of the tenancy if there is a disagreement. This way, tenants are guaranteed their money back as the scheme is insured. It also offers flexibility with subscriptions and invoices, making it more specific.

Legal requirements

For the deposit to be protected with TDS, you need be sure it is:

Part of the same scheme;

You need to pay a membership or a protection deposit protection charge

Enrolled the deposit on the TDS tenancy database

As the property manager, you need to provide your tenants with specified information, which is set out in the Housing Order 2007, which comprises of:

Your contact details

Rented property’s address

The deposit amounts

The paperwork should be signed to confirm all the information is correct

Penalties for failing to comply

You should ensure the deposit is put into a protected schemewithin 30 days of receiving the deposit. If you don’t do this, you run the risk of being taken to court and you could have to pay the tenant compensation of up to three times the value of the deposit.

Another reason to make sure you follow the rules when it comes to TDS is when it comes to eviction notices.  If you don’t put the deposit into a TDs, and then you later want to evict the tenant, a Section 21 eviction order will be invalidated if you have not used a TDS, and then you could be stuck with a difficult tenant for longer.


Conlusion

TDS only deals with disputes regarding the deposit itself and doesn’t deal with any potential disputes between you and the tenants outside of the TDS it and attempts to raise standards in the private rented sector by decreasing the chances of disputes. However, it does not act as a mediator between two parties.

The deposit is returned in full if there has been no dispute unless there are any other deductions to be made that the tenant has agreed upon. If there is a dispute, you should try to reach an agreement with your tenant and agree on any deductions. If the deposit is not returned within 10 days, then the tenant is able to request TDS to resolve the issue.

While sometimes disputes are inevitable, the best way to avoid getting to the stage where the TDS is triggered is to maintain good communication with the tenants, building a good relationship, so issues can be dealt with between yourselves.  Also, you can conduct regular inspections of the property to ensure it is being treated well, and that way if there is any damage that could lead to a dispute it can be flagged early and won’t have to wait to be resolved by TDS arbitration.

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