Deposit Protection: a guide to protect your money

03/12/2016

When you are moving into a rented home, you will be probably asked to pay a deposit to the landlord (usually the deposit is the equivalent of one month of rent, but it can also be higher).

The Deposit is given to the Landlord or the Letting Agency to protect against any breaches of the contract and to repay any damages or unpaid bills at the end of the Tenancy.

The Deposit is the Tenant’s property throughout the tenancy and should be returned in whole to the Tenant at the end of the Agreement if the Tenant has obeyed to the Agreement itself. For this reason, we always advise our clients to require an Inventory at the beginning of the Tenancy in order to have a further evidence in case of future disputes.

The Inventory is produced to prove the conditions of the property before the moving in and should include photos and a proper valuation of the conditions of the house. It has to be signed by both the Landlord and the Tenant and can be used as a proof at the end of the Tenancy if any dispute arises.

In case you are not provided an Inventory.

It is a good practice to shoot some photos of the flat when you actually move in. In the past, the Landlord had the possibility to withhold part or the entire deposit at the end of the Tenancy, when in dispute with the Tenant.

To protect better the interests of the residents, the law changed and the Government introduced the Tenancy Deposit Protection in 2007 as part of the Housing Act 2004, in order to regulate the system and reduce flaws.

Today, Landlords have to protect their Tenants’ Deposit using an approved protection scheme, if they let the property on an Assured Shorthold Agreement after April 6, 2007. Some exception is still valid and protecting the Deposit might not be necessary when the Landlord lives on the property with the Tenant or the Tenant lives in a student hall of residence.

The Deposit paid for Tenancy

that started before this date ha also to be put in one of the available Schemes before June 23, 2015, as stated by the Deregulation Act. Landlords who failed to do so risk to pay a fine up to three times the value of the Deposit.

According to a recent study, around 330,000 Tenancies were affected simply because the Landlord was not aware of the change of the law and ignored the necessity to protect the Deposit.

Even when you stated renting your house before 2007, remember to check if your Landlord has actually protected your Deposit.

Why is so important to have a Deposit protected?

The Deposit Protection Scheme was established to safeguard the Deposit, the interests of both the Landlord and the Tenant and is an effective tool to resolve disputes and to build a better relationship between parties before the beginning of the Tenancy.

When it is time to pay the deposit, the Landlord may accept to be paid with items, such as a car, but the payment will not officially protected by the Deposit Protection Scheme.

There are three approved deposit protection schemes operating in England and Wales. They are all free and backed by the Government:

– Deposit Protection Service
– My Deposit
– Tenancy Deposit Scheme

In Scotland and Wales, different types of schemes were implemented.

If other schemes are uses, then they will not be protected by the law.

But are the types of deposit protection schemes the same?

There are two types of protection scheme:

– Custodial-based
– Insurance-based

The Custodial-based scheme is provided by the Deposit Protection Tenancy. It is free to use and the Landlord or Letting agents can simply pay the Deposit online or over the phone.

Landlords based overseas must use the custodial Deposit Protection Service scheme unless they employ a British-registered Letting Agent to manage their Tenancy.

When the Deposit is under an insured-based scheme, the Landlord or the Letting Agent will hold the Deposit but have to pay a fee to insure the Landlord will not illegally hold the Deposit at the end of the Tenancy.

If at the end of the Tenancy the Landlord does not release the Deposit, the insurance will pay back the Tenant. This scheme is provided by Deposits or the Tenancy Deposit Scheme.

How to pay the Deposit

The Deposit must be paid when the Tenancy Agreement starts and will include also the Holding Deposit paid to secure the property.

Within 30 days after the payment and the contract signing, the Deposit must be put into one of the Schemes chosen by the Landlord, even when the Deposit was paid by a third person, such as the Tenant’s parents.

Within 30 days of receiving a deposit, landlords must provide tenants with:

– Address of the rented property
– Deposit paid
– Name and contact details of the deposit protection scheme and its dispute resolution service
– The landlord or the letting agent’s name and contact details
– Name and contact details of any third party that has paid the deposit
– Why they would keep some or all of the deposit
– How to apply to get the deposit back
– What to do if a tenant cannot get hold of the landlord at the end of the tenancy
– What to do if there is a dispute over the deposit

The Deposit is protected for all the duration of the Tenancy. Even when the Tenant decides to move before the contract’s termination. When the contract renews it will be still protected.

How to receive back the Deposit

At the end of the Tenancy, the full amount of the Deposit must be returned. If the terms of the Agreement are met, the rent and bills are paid. So the property and its content were not damaged.

The Landlord might keep part of the Deposit to repair some damages reported in the property. And even in this case the rest of the amount will be protected until the dispute is solved. The exact arrangements depend on the type of the Scheme chosen.

When no dispute arises.

The full amount of the Deposit will be refunded to the Tenant within 10 days from the end of the Tenancy.

In case of dispute, the Tenants and Landlord can resolve it through an Alternative Dispute Resolution, offered by each of the schemes.

When the dispute register there might be a limit. And it is advisable to contact the scheme as soon as the dispute arises. Furthermore, the service can be only when both the Landlord. And the Tenant agrees to use it and accept the ultimate decision.

If a dispute arises,

the Landlord and Tenant are both required to provide evidence to an impartial and qualified adjudicator within the required timescale. Adjudicators can be individuals hired under contract to the particular deposit protection scheme or employed directly by the scheme.

The involved parties can produce several pieces of evidence to clarify their position. Such as the Tenancy Agreement, the Inventory, photos, bank statement, utility bills. And also statements accept witness.

The adjudicator will value the evidence, inspect the properties and will pronounce on the final outcome. If the Landlord or Tenant don’t accept it, it is possible to proceed to Court.