Deposit protection: How tenants can protect their deposits

Most people moving into a rental property will likely have to pay a deposit before they do so, but for many it is important to know whether this will be protected during their time in the property.

Tenancy deposit protection (TDP) schemes are a way of ensuring that money paid by tenants is kept safe, but many types of agreement are covered by the TDP, so it is best to explore the options available.

The law

By law, landlords must protect their tenants' deposits using a TDP scheme if they have let the property on an assured shorthold tenancy which started after April 6th 2007.

These conditions do not apply in some cases, such as when a landlord lived in the property with the tenant, but it is still regarded good practice to ensure deposits are protected.

There are three approved TDP schemes to protect tenants' deposits where these conditions apply. If any other scheme is used then deposits are not protected in law, so it is vital that either the Deposit Protection Service (DPS), MyDeposits or Tenancy Deposit Scheme (TDS) is used.

Using a TDS is designed to encourage landlords and tenants to draw up clear tenancy agreements and also provides a free service to resolve disputes, but does not cover holding deposits.

Tenants can pay a holding deposit before they have signed a rental agreement, but landlords are not required to protect one with a scheme before someone becomes their tenant.

However, once they become a tenant the holding deposit becomes something which must be protected with a scheme.

Types of deposit protection schemes

There are two types of TDP schemes - custodial and insurance-based, and while any landlord can use the custodial scheme there are some restrictions on who can use the insurance-based schemes.

Tenants can expect a decision as to how much of their deposit is going to be returned to them within ten days from the end of the tenancy, while any part of the deposit kept back at this stage will remain protected in the scheme being used until such time as any dispute is resolved.

However, the exact arrangements depend on the type of scheme used.

The only custodial TDP scheme is provided by the DPS, and involves the DPS holding the deposit money in a bank account. When the tenancy ends, it releases the deposit to the person who is entitled to it.

Landlords based overseas must use the custodial DPS scheme unless they employ a UK-registered letting agent to manage their tenancy.

If the DPS is used for tenants adopting a rent deposit scheme, such as when a council pays the deposit and the tenant leaves, landlords can agree with the council or a third party to keep the deposit in place for the next tenant.

Under insurance-based schemes, the landlord or the landlord's agent holds the tenant's deposit and pays a fee to insure it against the landlord illegally keeping the deposit.

If the landlord does not pay the tenant the amount they are owed at the end of the tenancy, then the insurer will pay the tenant and try to get the money back from the landlord.

If the tenants' deposits are paid in instalments as part of a rent deposit scheme, then landlords must use an insurance-based TDP scheme, the only two providers of which are MyDeposits and the TDS.

Within 14 days of receiving tenants' deposits, landlords must give the relevant information to their tenants, together with the address of the rented property and the amount of deposit paid, the landlord's or letting agency's name and contact details and the name and contact details of any third party that has paid the deposit.

In addition, tenants must be provided with information about items or services covered by the deposit, the circumstances under which the landlord will be able to retain some or all of the deposit and what to do if there is a dispute over how much deposit should be returned.

Landlords are responsible for making sure the deposit is kept safe with one of the schemes even if they use a letting agent to look after the deposit, which provides the tenant with peace of mind.

It is worth taking the time to explore the different schemes available and see which is best for you, considering the property you live in, the rental agreement and the landlord's own situation to ensure you make the right choice.