Deposit Schemes

1. The custodial scheme

The landlord pays the deposit to the scheme administrator to hold for the duration of the tenancy. This scheme is likely to be used most by individual private landlords who do not use letting or managing agents. It is free to landlords and tenants and covers its costs by earning interest on the deposits held.

The scheme administrator is Computershare Investor Services PLC (www.depositprotection.com) which has operated a similar scheme in the Australian state of Victoria for eight years.

2. The insurance schemes

The landlord or letting agent may hold the deposit, but must pay to join an insurance-based scheme, which provides cover for the return of the deposit to the tenant if the landlord or agent should fail to do so without good cause. Understandably, therefore, the scheme administrators require certain professional standards of members, making these schemes more suitable for letting agents and large-scale professional landlords.

There are two insurance-based schemes:

One, aimed at landlords, is run by Tenancy Deposit Solutions Ltd (www.mydeposits.co.uk), telephone 0871 703 0552, sponsored by the National Landlords Association.

The second, aimed at letting agents, is run by The Dispute Service Ltd (www.tds.gb.com), telephone 0845 226 7837, sponsored by the industry professional bodies ARLA, NAEA and RICS.

Resolving disputes

An important feature of the legislation is that both types of scheme must also provide free and impartial “alternative dispute resolution” (ADR) services, to settle disputes about deductions from deposits. These are designed to provide a quicker and simpler service than is available through the Courts.

Penalties for non-compliance

The tenant can apply for a Court order requiring the landlord to comply with the regulations and provide the prescribed information to the tenant. The Court will order the landlord to:

repay the deposit, or
pay the deposit into a scheme; and
pay the tenant a sum equal to three times the deposit

all within fourteen days of the Court order.

In addition, while the landlord/agent is in breach of the regulations, any Section 21 notice issued will be invalid. This will in most cases preventing the landlord from recovering possession of the property if the tenant does not leave at the end of the tenancy.