Deposit Guidance for Landlords

Legislation

Under the Housing Act 2004 it is a legal requirement to ensure any deposit in relation to an assured shorthold tenancy is protected in a government backed tenancy deposit scheme. 

Any deposit must be registered as protected with one of the schemes and Prescribed Information with respect to that deposit protection supplied to the tenant within 30 days of receipt of that deposit. You must also follow the guidelines provided by the scheme that you have chosen to use for protecting the deposit.

If you have opted to have your property managed by an agent, they will usually take care of this process for you, however if you have opted to manage the property yourself it will be your responsibility to manage this process. Even if using an agent, it is a good idea to check that the deposit has been dealt with correctly as ultimately it is the Landlord that will be held accountable under the law.

Deposit Schemes

There are three deposit protection schemes available for you to choose from when protecting a tenancy deposit;

• MyDeposits
• Tenancy Deposit Scheme (TDS)
• Deposit Protection Scheme (DPS)

All the schemes operate in a similar way, therefore it is really a personal choice as to which scheme you would like to use.

When you have selected a scheme, you have two options as to how you want that deposit to be protected;

• Custodial Scheme
• Insured Scheme

What is a Custodial Scheme?

A Custodial Scheme is where the deposits funds are held by the scheme itself for the duration of the tenancy. When you come to process the deposit return at the end of the tenancy, you will complete an online form on your scheme account detailing any dilapidations with respect to the deposit and the scheme will manage the return process and administer the deposit return. Protecting a deposit in a Custodial Scheme is completely free of charge but as the scheme is holding the funds they will retain any interest by way of payment for the service.

What is an Insured Scheme?

Protecting a deposit in an Insured Scheme means that you, the Landlord, will hold the tenancy deposit funds for the duration of the tenancy. It will be your responsibility to manage the return process and administer the deposit return. As you will be holding the funds throughout the duration of the tenancy you will keep any interest but you will be charged a small fee by the scheme for each insured deposit protection.

Protecting A Deposit

If you use an agent to purely source a tenant and set up a tenancy only, it is likely that the agent will be collecting the first months’ rent and the tenancy deposit from the tenant. In this case you will likely have two options - to either manage the deposit protection yourself, or the agent may offer to protect the deposit for you for an additional fee. If you are protecting the deposit yourself we have provided a general step by step guide to follow:

1. If you haven't already, register an account with the deposit scheme you have chosen (be sure to create the correct account based on a custodial deposit protection or insured deposit protection).
2. Create a new tenancy in your account and submit all of the tenancy information (you may need to confirm with the agent the date in which the deposit was received)
3. Register the deposit information. 

If you are protecting the deposit in a custodial scheme, at this stage there should be an option for you to opt to pay the deposit later or via bank transfer. You will need to select these options to enable the agent to transfer the funds to the scheme.

4. You will then receive an email that the deposit protection has been logged pending funds and will include payment information - you will need to forward this to your agent to enable them to transfer the funds to the scheme. 

Please note that without this confirmation that the deposit has first been logged with the scheme, agents will likely not transfer the funds.

5. Ensure the agent has transferred the funds to the scheme within the required timeframe. Even though you have logged the deposit it is not fully protected until the funds have been received by the scheme, which must be completed within 30 days of receipt of the funds. As mentioned, it is ultimately the Landlord that is responsible for ensuring that the deposit is protected in compliance with the law.
6. Once the deposit has been protected you will be able to download the Prescribed Information from your account which you will also need to issue to your tenant within 30 days of receipt of the funds.

Penalties

Failure to comply with the legislation will result in substantial penalties to a Landlord;

• You will lose the ability to serve a Section 21 Notice on your tenant (a no fault notice you could ordinarily serve to try to regain possession of the property) unless you repay the deposit back to the tenant in full.
• The tenant has the power to claim compensation which could total anywhere from one to three times the value of the deposit.
• If the tenant decides to take you to court you may be liable for any legal costs if they are successful.

These penalties underpin the importance of complying with the regulations so as to avoid significant legal and financial losses.

How can Let Correct help?

Your local Lettings Specialist is always on hand to help with any deposit queries you may have, regardless of whether you are a Let Only Landlord or have opted for a Rent Collection or Fully Managed Service. 

Adding value to Landlords is one of our core values which is why we have procedures in place in order to failsafe the deposit protection process such as including all prescribed information within our tenancy agreements to ensure these are always served to the tenant on time and to protect our Landlords from any potential penalties.

If you need any assistance with protecting deposits or any other guidance on letting your property, get in touch for a free no obligation consultation.