An Update On Tenancy Deposit Schemes

Which types of tenancies are caught by the Tenancy Deposit Schemes (TDS)?

A landlord who lets a residential property on an Assured Shorthold Tenancy (AST) must, since 6th April 2007, pay any deposit into an approved TDS. The majority of residential lettings are likely to be under an AST. The exceptions to this are where the annual rent exceeds £100,000 per annum, the tenancy is as a result of the tenant’s employment or the tenant shares occupation with the landlord. An important point to note for a landlord is that even if the tenant entered into an AST prior to 6th April 2007, if the tenant remains in occupation of the property after the contractual term comes to an end, then this requires the landlord to pay any deposit into a TDS.

What are the aims of the TDS?

The TDS has two main objectives; firstly, to ensure that the tenant’s deposit is protected and returned to the tenant at the end of the tenancy, subject to any legitimate deductions. Secondly, to resolve disputes between the landlord and tenant, without the need to involve the courts.

What types of TDS are available?

There are two types of TDS available, a custodial TDS and an insurance TDS. The key difference between the two types of TDS is that with a custodial scheme it will be the scheme administrator who holds the deposit and with the insurance scheme, it is the landlord who holds the deposit. It is for the landlord to choose which scheme it wishes to use. If the landlord is a company registered overseas, then the insurance TDS is not an option. Furthermore, to use the insurance TDS scheme you or your letting agent must be a member of an approved professional body, these include the Association of Residential Letting Agents, Royal Institution of Chartered Surveyors, National Association of Estate Agents and National Approved Letting Scheme.

What must a landlord do?

As from 6th April 2007, a landlord must pay a deposit into a TDS and provide the tenant or anyone who pays the tenant’s rent with specified written information. This information must include details as to where the deposit is being held, contact details for the deposit holder, the nature of the deposit and the procedure, should there be any disputes regarding the return of the deposit. This information is to be provided within 14 days of receiving the deposit; this was extended to 30 days on 6th April 2012. Any failure by the landlord to do this may have serious consequences.

What are the sanctions for a landlord’s failure?

There are two main sanctions. The first is that the landlord may be prevented from recovering possession of the property. The second is that the landlord may be required to return the deposit and pay compensation by way of a fine to the tenant or relevant person for failing to provide the prescribed information. Should a landlord find that it has not complied with the 14 or 30 day time period for providing the prescribed information, then it should immediately provide such information. Until this information is provided, a landlord cannot serve a Section 21 Notice to bring the tenancy to an end. A landlord who does not provide the prescribed information in time may be fined by the court an amount up to three times the deposit.

Is there any way of avoiding paying the deposit into a TDS?

If you take any security from a tenant then this is likely to be classed as a deposit. There has been an attempt to avoid the requirement that a deposit must be paid into a TDS by a landlord seeking to charge two or more months rent in advance of the start term, which would be held by the landlord and utilised towards the last two months rent. This has been considered by the courts and deemed to be a deposit, therefore a landlord must still comply with the TDS requirements.

Do I need to worry about TDS as I use letting agents?

Hopefully, the letting agent will be fully familiar with the requirements and will comply with the rules. However, there are a small number of less reputable agents who have, in the past, disappeared with tenants’ deposits. We would advise any landlord to ask their letting agent for details of where the deposit is going to be held and a copy of the information provided to the tenant. A landlord will want to ensure that its letting agent has complied. A failure by the agent is likely to result in the landlord being unable to take possession until it has complied with the rules. If the agent has disappeared with the deposit, the landlord will need to pay an amount equivalent to the tenant’s deposit into a TDS. In addition, it may also have to pay compensation to the tenant.

If we can be of any further assistance then please do not hesitate to contact us.

We hope you have found this note useful, however, it is general in nature and for information purposes only. It is not a substitute for legal advice. Therefore Bishop and Sewell LLP accepts no responsibility whatsoever for any loss howsoever arising in connection with any use of the contents of this article. If you require specific advice please contact us.

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