The New Tenancy Deposit Scheme From 6 April 2007

Just to confuse matters there are two new types of tenancy deposit protection ‘schemes’, each of which operates in slightly different ways. Your landlord/agent (not you) decides where to safeguard your deposit under whichever scheme they prefer. All that’s legally required is that they use a scheme. These new rules apply to every single deposit taken on an assured shorthold lease (in other words the overwhelming majority of tenancies) after 6 April 2007. Since that date all assured shorthold deposits need, by law, to be safeguarded under one type or another of tenancy deposit schemes.

It’s the landlord’s/agent’s job to find out about schemes and how to use them, not the tenant’s. Strict penalties exist in tenants’ favour against landlords/agents who don’t protect your deposit. All tenants are legally entitled to official documentation of where their deposit is ‘safeguarded’ within 14 days of handing over a tenancy deposit. So, ask for the paperwork. It’s yours by law. However, where there’s clarity on some things, others are much less clear as you’ll see.

Note

The government is not holding deposits – this powerful position is to be given to private companies who will – sigh – need to make a profit on deposit management.

Option 1 The Insurance Based Scheme

Based on nothing more than a hunch – I suspect that this scheme will prove the more popular with independent landlords. My reasoning? It feels much more familiar than option 2 (explained in a minute).

Under this scheme landlords will choose a supplier of ‘guarantees’ i.e. a company that insures their tenants’ deposits and the landlord/agent will then pay some form of joining fee. When a tenant hands over a deposit under this system, landlords will continue to hold onto it. They will however have to also do the following things.

• Landlords/agents will be legally obliged to register this specific deposit and (presumably) pay an additional charge to their insurer to specifically insure the sum of your deposit.
• This must be done within 14 days of accepting any deposit (on an assured shorthold tenancy) (14 days after receipt of deposit – not 14 days into the tenancy).
• Having registered the deposit as held, the landlord’s/agent’s chosen insurer will then issue paperwork to the tenant via the landlord. This document must state exactly who is safeguarding your deposit where they can be reached, etc and documentation must reach you within those 14 days.

 

If everything proceeds well, the insurers will have little to do. Landlords and tenants will have to discuss deposit refunds together. A novel idea for many!

• If a full refund is due the landlord is obliged to refund your money within ten days, but can do so much earlier as they have access to it.
• If any deductions are required, these must be agreed with the tenant before a penny of your deposit is touched.
• If mutual agreement is reached about how much can fairly be deducted to cover agreed costs, the landlord is again obliged to refund the deposit balance within ten days.

 

So, theoretically, under this scheme so long as landlords and tenants behave themselves they should be able to sort all these matters out amicably. That way, a legal maximum of ten days should occur between leaving any unit and getting back the money you are genuinely owed.

Disputes

Only if disputes arise will the safeguarding insurance company need to become significantly involved. So, if landlord and tenant do not agree how much deposit deduction can fairly be made, they must engage in a legal process.

• At the stage of any dispute the landlord/agent will be legally obliged to inform their insurance service immediately.
• And landlords must hand over the whole of the disputed amount to their insuring company immediately. Make sure that your landlord knows that you are aware of this – and of their obligations.
• Any undisputed balance must be handed back to the tenant within ten days.

 

So, say your landlord holds a £600 deposit and you are at loggerheads over a proposed £200 deposit deduction, then the landlord must immediately hand over the disputed £200 to their insurance scheme and return the undisputed £400 to you direct within ten days.

• With disputed money safely back in the hands of the company safeguarding your deposit a dispute resolution service will kick in. Schemes, not the landlord, will decide who owes what to whom and it will disperse money accordingly. Of course, first both landlord and tenant must jointly agree to use the dispute resolution service – unless they do, arguing parties will be back to the small claims courts – and the scheme will hold onto the money, then only disperse it according to a court’s ruling. Courts, I suspect, will not be delighted to see claimants who’ve refused to use a perfectly fair arbitration system.

 

The insurance aspect of these schemes means that defaulting landlords will no longer be able to abscond with tenants’ cash. The insurer will pay out what is owed to tenants direct and it will be responsible for chasing up its debtor landlords/agents – not tenants via the Small Claims Courts. Applause!