Deposit protection: a complete guide
Deposit protection: an introduction
Deposit protection was added to The Housing Act 2004 in April 2007 to raise standards in the lettings industry. Since then, it’s been a legal requirement to protect all deposits for an Assured Shorthold Tenancy (AST).
In this blog, we look at the ins and outs of deposit protection to make sure you know what to do.
- What is deposit protection?
- Who is deposit protection for?
- Why is deposit protection important?
- What can happen if I neglect deposit protection?
- How do I arrange deposit protection?
- When do I arrange deposit protection?
- What happens with deposit protection once a tenancy ends?
- What happens if I need to make deductions?
- How does deposit protection work if I buy a property with sitting tenants?
- How can easyProperty help?
Get our tenancy agreement and deposit protection bundle for just £24.99. Perfect for keeping on top of this legal obligation.
What is deposit protection?
Deposit protection is a government-recognised record of any deposit taken for an Assured Shorthold Tenancy (AST). Deposits must be protected with one of three schemes: Deposit Protection Service (DPS), MyDeposits, or Tenancy Deposit Scheme (TDS).
When a landlord or agent protects a deposit, the scheme sends out a certificate to the landlord/agent and the tenants. It confirms the deposit amount, the property it relates to, the tenancy length, and who the deposit belongs to.
Who is deposit protection for?
Deposit protection is to make sure landlords and tenants get the right deposit amount back when a tenancy ends. If landlords or letting agents keep deposits unfairly, this record helps tenants take legal action against them.
Why is deposit protection important?
Deposit protection is a legal requirement. The government recognised that many landlords and agents kept deposits unfairly at the end of tenancies and introduced the legislation.
Some landlords think they have more access to the deposit if they don’t protect it. However, there are high penalties for not doing so.
What can happen if I neglect deposit protection?
The fine for not protecting a deposit is up to three times the deposit amount, which is given to the tenants. It’s vital to protect the deposit to avoid fines eating into your rental profits.
Landlords and letting agents can’t serve a valid Section 21 Notice if they haven’t protected the deposit. A Section 21 Notice is used to take back a property at the end of a tenancy without having to provide a reason. Should landlords need to rely on this, they are left vulnerable if the deposit isn’t protected.
Landlords could also be stopped from serving a valid Section 8 Notice, which is used to evict tenants due to unpaid rent. A judge could award tenants up to three times the deposit amount and bring them out of arrears, neutralising the grounds for eviction.
For more on how to take back your property, read our guide: ‘Advice for evicting tenants’.
How do I arrange deposit protection?
Landlords must protect deposits using one of three government-backed schemes: Deposit Protection Service (DPS), MyDeposits, or Tenancy Deposit Scheme (TDS). You can either use insurance- or custodial-based protection.
What is insurance-based deposit protection?
Insurance-based deposit protection is where the landlord or letting agent holds on to the funds. They must be kept in a separate bank account.
Should a rogue landlord or agent run off with the funds, the scheme will pay back what’s owed to the tenant. The scheme then chases the landlord or letting agent to get back the payment.
What is custodial-based deposit protection?
Custodial-based deposit protection is where the scheme holds on to the funds. Custodial protection is often cheaper, as the scheme makes interest on the money it holds.
Any repayments — whether they go to the landlord or tenant — must go through the scheme it’s protected with. This often makes tenants feel more at ease — especially if there’s a dispute.
What is the Prescribed Information?
The Prescribed Information varies depending on the scheme the landlord or agent uses. Make sure you give tenants the right information.
Deposit protection with easyProperty has the Prescribed Information with the tenancy agreement. By signing it, tenants confirm they’ve read and understood it. This means landlords are protected. Get yours now.
When do I arrange deposit protection?
Landlords and agents must protect deposits within 30 days of receiving the funds. Otherwise, tenants can take legal action and landlords can be fined up to three times the deposit amount.
It’s best to wait for tenants to move in before protecting the deposit — providing 30 days haven’t passed. Should something change (for example, if the tenants decide not to move in), you’ll need to unprotect the deposit and return it to them.
What happens with deposit protection once a tenancy ends?
At the end of the tenancy, the landlord or letting agent should inspect the property and decide if tenants should get their whole deposit back. For example, there may be damages, unpaid bills, or cleanliness issues that need looking at. The deposit must be paid back within 10 days of agreeing how much should be returned.
If using an insurance-based scheme, the landlord or agent must unprotect the deposit and return the agreed amount to the tenants themselves.
If using a custodial-based scheme, the repayment amount is often put through by the landlord or agent using the scheme directly. Tenants are given the chance to agree or disagree with what has been suggested. If they agree, the amount is returned to the tenants from the scheme holding the funds.
What happens with deposit protection if I need to make deductions?
Tenants must agree to any deductions the landlord or letting agent suggests. If they agree, the deposit can be returned accordingly, depending on the scheme that’s been used.
If tenants don’t agree — and a resolution can’t be made — a dispute must be raised with the scheme it’s protected with. This is often called a dispute resolution service. An independent adjudicator looks at any evidence there is to decide how much, if anything, should be deducted. For example, if deductions are for unpaid rent, they’ll likely want to see bank statements to prove it hasn’t been paid.
In the case of damage to the property, a lot relies on having a watertight inventory. It’s hard for an adjudicator to decide if the deductions are justified without evidence, and often the whole deposit is returned to tenants if there isn’t any. An adjudicator’s decision is final.
Protect yourself and your property from deposit disputes. Get a thorough inventory in time for the start of a tenancy.
How does deposit protection work if I buy a property with sitting tenants?
If a property is bought with tenants in place, the new owner takes the place of the landlord — as well as all their responsibilities.
The deposit forms part of this, so it’s vital to check with your solicitor that it’s been protected. If it hasn’t, you have two options:
- Request the homeowner protects the deposit and has this transferred into your name as part of the sale; or
- Request the homeowner lowers the asking price by the deposit amount so you can protect it upon completion.
If you’ve completed on a purchase and the deposit hasn’t been protected, you’ll need to put up the money yourself and arrange this. It may seem unfair, but the fine for failing to protect it could be three times the deposit amount. This might end up costing you more.
For more information, read our blog: ‘What to expect when you buy a property with sitting tenants’.
How can easyProperty help with deposit protection?
For just £24.99, our tenancy agreement and deposit protection bundle is perfect for meeting this legal obligation and keeping you protected.
Or if you need to find tenants, our £99 Essentials package is ideal. It includes six weeks of marketing on Rightmove and Zoopla, tenant referencing, a tenancy agreement, and deposit protection.