What Are Deposit Protection Schemes (TDP) ?

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What is a tenancy deposit

To protect the landlord and his property from “less-than-stellar” tenants, all assured shorthold tenancies (AST) require the renter to pay a tenancy deposit after they sign the lease.

The tenancy bond is a sum of money that acts as a guarantee in case the tenant falls into arrears, damages the property, leave unpaid bills and other acts that cause the landlord to suffer financial loss.

The renting deposit is usually equal to one or two months of rent, depending on the particular tenancy agreement, signed by both parties. Some special tenancy contracts or high-end luxurious properties may have special requirements for the amount of the deposit.

If a tenant has put a holding deposit to keep the property unoccupied, it converts into a tenancy deposit by default.

From June 1st, 2019 a new regulation goes into force capping the maximum size of any tenancy or holding deposit for assured shorthold tenancies. Under the Tenant Fees Act 2019, security deposits will be capped to 5 weeks worth of rent – where the total annual rent is less than £50,000. Higher value properties are capped at 6 weeks worth of rent of the above that sum.

Holding deposit for all properties are also capped to 1 week worth of rent.

Read more about the Tenant Fees Act 2019 in our dedicated guide – Letting Agent Fees.

Hot Tip: Always require a receipt of payment when you hand out your money. This is the only documented evidence of a successful payment with the correct time stamp.

Deposit protection

In the past, landlord were governors of the deposit money and had to decide how much and for what should be deducted. Obviously, the law is unfair when one side has so much dominance over the matter than the other.

So, on April the 6th, 2007 a new regulation was introduced into the Housing Act of 2004 – tenancy deposit protection (TDP). This new regulation required all tenancies signed after the same date to protect the security deposit in a government approved agency.

These agencies are called tenancy deposit protection schemes and are impartial bodies that act as a mediator between the landlord and tenant when regarding the rental deposit.

What is a tenancy deposit protection (TDP) scheme

Tenancy deposit protection schemes are companies approved by the government. They have the authority to govern tenancy deposits and oversee the process of deposit returns, deposit deductions and disputes.

TDP schemes must fulfill a few very important roles:

• protect and govern tenancy deposits
• provide information to both landlords and tenants related to the deposits
• oversee the process of deposit return
• oversee the process of deposit deductions
• provide judgement in case of deposit disputes
• remain unbiased and impartial
• secure the rights and enforce the responsibilities of both landlords and tenants regarding the deposit

At the start of any assured shorthold tenancy, the tenant must pay a tenancy deposit as agreed with the landlord. When that happens, the landlord has 30 days to choose one of the three government-backed companies and protect it with them as per the proper procedure. In the same time, the landlord must provide prescribed information to the tenant.

What types of TDP schemes are there

To be as flexible as possible, deposit protection companies offer two types of schemes, to allow the landlord to operate comfortably with the tenancy deposit. Both types of protection fully guarantee that the tenant’s rights will be secured and their money rightfully returned at the end of the tenancy.

Custodial scheme

Custodial schemes are the more classical way you’d think of deposit protections. The landlord will submit the full amount of the deposit to the TDP scheme to hold and protect it until the end of the tenancy.

When the tenancy ends, the landlord and the tenant can both contact the scheme administrator and request the money to be repaid as due. In the case of a dispute, the money will remain with the scheme until a resolution is agreed upon by both parties or an ADR services is used, or a court order is obtained by any of the parties involved.

This type of deposit protection is usually free of charge. The money will earn small interest over time, which is commonly used to pay for the administration and management fees of the scheme.

Insurance based scheme

An insurance-based scheme allows the landlord or letting agent keep a hold of the deposit money in their own bank account. To be eligible to hold the money the above listed must pay a premium to the tenancy deposit protection scheme.

The landlord or agent can keep the money and operate with it as they wish until the tenancy ends. When that happens, they must repay it to the tenant. If the landlord and tenant agree on deductions, then the rest is directly transferred to the tenant.

If there is a portion of the deposit that is disputed, the amount not disputed is repaid to the tenant, while the rest is transferred to the deposit scheme. In a sense, when there is a dispute, the scheme becomes custodial automatically. The disputed money remains in the TDP scheme until a resolution is agreed upon, or there is a valid court order presented.

If the landlord fails to return the money as they should, the scheme repays the exact amount to the tenant and proceeds to deal with the landlord on their own accord.

Who are the government-authorised tenancy deposit protection schemes

My Deposits / Capita

My Deposits is a joint venture by the National Landlords Association and Hamilton Fraser Insurance. It provides deposit protection using the insurance-based scheme. Landlords and agents keep the deposit money in their own accounts and benefit from any interest or financial gains they’ve accumulated from this money.

The agreed amount of the deposit is guaranteed to the tenant by My deposits.

Capita Tenancy Deposit Service has provided a protection scheme until September 2013 but has since stopped functioning. All active deposits are since transferred into My Deposits. If you’ve been protected with Capita, check with My Deposits to make sure it is properly transferred.

Check if your deposit is protected by My Deposits.

Tenancy Deposit Scheme

The Dispute Service is only not for profit deposit protection scheme. They operate with insurance-based protection, allowing money to be kept by the landlord or estate agent in return of a fee to cover administration costs.

The deposit protection process is the same as when registering with My Deposits.

Check if your deposit is protected by the TDS.

Deposit Protection Service

This company is the only one to offer a custodial deposit protection. It is free of charge and thus has become the most popular protection service. If you rent from a small time landlord, chances are that your deposit is protected with the DPS.

Deposit protection service also enables landlords and estate agents to operate with insurance-based schemes.

Check if your deposit is protected by Deposit Protection Service.

How does the deposit protection procedure work

Depending on the exact deposit protection service the landlord picks, there might be tiny operational differences, so you should definitely check with the correct TDP scheme and learn about their process. Regardless, all of them would work in the following pipeline:

When the landlord and tenant sign an assured shorthold tenancy agreement, the latter is obliged to pay a tenancy deposit to the former. The amount is agreed upon in the contract, but it’s usually equal to one or two months of rent.

When the landlord receives the payment, the must submit it to their chosen tenancy deposit protection scheme. Additionally, they must provide prescribed information to their tenant (more below). Both of these actions can happen within 30 days of receiving the money.

In the case of a custodial scheme, the landlord has to submit the full sum of the deposit. In case of an insurance-based scheme, the landlord must only pay their registration and administration fees, as per the scheme rules.

The tenant must check with their landlord and their chosen scheme to ensure the protection is properly executed within the given amount of 30 days. If not, they must contact the landlord and instruct them to protect their deposit.

If they suspect the landlord is unwilling to protect their deposit, tenants can seek legal advice and claim for non-protection of the deposit (more below).

At the end of the tenancy, the landlord is obliged to return the deposit in a ten day period, if it is to be returned in full. If there are deposit deductions, the landlord must inform the tenant and the deposit protection scheme of the deductions in question and give reasoning for these claims.

The tenant must then agree to the deductions, after which the money is split and refunded accordingly. If the tenant wants to fight the deductions, they must reply to the claims applying their own version, and if possible proof to denying the deduction.

If both parties remain in disagreement, they can either opt to use the alternative dispute resolution service, provided by the chosen TDP scheme for free, OR file their case in the county court.

When either option is chosen, both sides will provide their claims, documents, and proof. The judge or the adjudicator will review them and come up with a resolution that is final and can no longer be disputed.

The deposit will then be accordingly split and refunded to both sides.

What prescribed information should landlords provide

Tenants have a right to receive prescribed information that sustains essentials and contacts regarding the deposit, the tenancy, and rented property. Each scheme has their own version and template for this document.

On each one you will find the following entries:

• the address of the rented property
• how much deposit you have paid
• how the deposit is protected
• the name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service
• the name and contact details of your landlord or letting agent
• the name and contact details of any third party who paid the deposit (e.g. parent)
• why some or all of the deposit may be kept
• how to apply to get the deposit back
• what to do if you can’t get hold of the landlord at the end of the tenancy
• what to do if there is a dispute over the deposit

This document must be provided within 30 days of receiving the procedure. If it is not provided, or part of its information is wrong or missing, the landlord has not properly protected the deposit and is vulnerable in court.

Make sure the information on the document you receive is correct and there are no missing details. Inform your landlord of any problems and request them to review and correct any mistakes.

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What if the landlord has not protected the deposit

The landlord is obliged to protect the deposit and provide prescribed information in 30 days of receiving the money from their tenant(s).

Failing to do so, doing it incorrectly, or missing the deadline is irreparable. If a tenant claims to the court for failed deposit protection, they can receive up to three times the original deposit amount.

Also, tenants may be awarded the original deposit or the landlord can be ordered to still undergo a protection procedure.

Additionally, landlords who have not properly protected their tenants’ deposit, cannot make use of Section 21 Eviction notice, for no fault evictions.

The tenant is responsible for checking the protection procedure and notifying the landlord of any errors, so they can correct them in due time.

It’s recommended that tenants thoroughly check with the landlord and chosen TDP scheme to ensure their deposit is protected. If you don’t know which your TDP service is, check with all of them, or seek legal assistance.

End of tenancy, deposit return and deposit deductions

When the tenancy ends and the tenant move out and returns the keys, they should write to the landlord and request them to return the deposit.

Then, the landlord has 10 days to respond with either an agreement or a plan for deposit deductions with reasons for each item deducted. E.g. if a landlord wants to deduct the deposit to offset one month of rent arrears, they would say they never received a payment for the given month and offer a history of their bank account movements.

The tenant has to agree with the deductions or negotiate them with the landlord, using their own documents and proof, collected during the tenancy.

If both parties finally agree on common terms, they can give their approval to the tenancy deposit protection scheme to release the funds as agreed on. Otherwise, the money remains locked.

Landlords and tenants need to choose between the Alternative dispute resolution, provided by the TDP scheme, or submit their case in the small claims court.

If you choose to go to court, you must contact a legal professional and seek assistance with your case. We recommend not going court if you’re not thoroughly informed on how to proceed and defend your case. Otherwise, you risk losing money and time.

What is Alternative dispute resolution (ADR)

Alternative dispute resolution (ADR) is a service provided for free by any of the tenancy deposit protection schemes. Both the landlord and tenant must agree to use it, otherwise, the matter should be resolved in real court.

When ADR has been chosen, the deposit protection company will assign an impartial adjudicator. He will speak with both sides and review all submitted evidence and documents.

After a proper investigation, the adjudicator will come out with a resolution that is fair for both sides, derived from the proof. Then, the deposit will be accordingly split and returned to tenant and landlord.

In case of an insurance based scheme, the amount not disputed will be immediately returned to the tenant, following any additional money ruled in favour of the tenant.

Important documents that the ADR will require and find useful:

The inventory report – It’s the most important document when deciding deposit disputed. The move in/out inventory documents the state of the property when the tenant moves in and moves out, so if there is any damage or lack of maintenance, it should be visible from this report. It is always recommended that the inventory report is accompanied by photographs for better judgement. Any tenant is advised to make their own inventory and capture their own photographs of questionable items and damages.

Evidence of rent paid (receipts or bank statements) – It will prove that you’ve paid your rent regularly and on time.

Payment receipt for the deposit – It will prove that you’ve paid a deposit to the landlord. Afterwards, it’s a responsibility for the landlord to protect the deposit in 30 days. The date on the receipt is proof of the legal timeframes for deposit protection.

Prescribed information as received – You’re recommended to provide the prescribed information document as you’ve received it as the landlord. If it’s partially incorrect or is missing essential information, it is likely that the deposit protection procedure has not been properly conducted and thus, the landlord might be vulnerable for penalties.

A copy of your signed tenancy agreement – Although deposit protection is defined regardless of any tenancy agreement that you might have signed, the contract might hold important information about deduction rights, and agreed rights and responsibilities of both parties. It might have weight about which deductions are fair and which are not.

Copies of written communication between the tenant and landlord  – Physical mail, email, texts and any other written messages between you and your landlord may hold important information about your tenancy and subsequently the deposit and deposit deductions.

You’re encouraged to provide anything else that might be relevant to your case or act as proof for your claim.

It’s always recommended to try and negotiate with your landlord and walk your way to a common decision. Also, make sure you’ve done your best to uphold your responsibilities as a tenant.

Do your best to ensure there are no reasons for your landlord to seek a compensation from your deposit. Or, discuss the issues openly and agree to a fair deduction for refreshments.

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