Tenancy deposit protection schemes will ensure that when tenants are entitled to get their deposits back, they can be assured this will happen. Landlords in the UK currently hold £1.2 billion of tenants' money and from 6 April will have to protect all deposits received through a government-authorised protection scheme.
Tenancy deposit protection schemes will also assist with any conflict between landlords and tenants by having a free alternative dispute resolution service (ADR). The schemes will encourage tenants and landlords to ensure contract certainty and maintain inventories on the condition of properties.
The insurance-based Tenancy Deposit Solutions scheme run by the NLA is the only scheme designed primarily for landlords who wish to continue to hold deposits themselves throughout the tenancy. The scheme will operate on a 'pay-as-you-go' basis and will be funded through a fee paid by landlords to the scheme administrator and it will be free to tenants. Any failure by the landlord to repay the deposits to tenants will be covered by the scheme’s insurance arrangements.
David Salusbury, chairman of the National Landlords Association, said to landlords: “Burying your head in the sand is not a viable option. From 6 April, any landlord who holds a deposit in respect of an Assured Shorthold Tenancy will be required to protect it, and the penalties for non-compliance are severe.”
The schemes will not apply to landlords of properties with rent of over £25,000 a year, company lets, student accommodation let directly by universities or colleges, or resident landlords.
However, there are several landlords who have little or no knowledge of tenancy deposit protection and are not prepared for the schemes. Some may intend to rely upon a letting agent to ensure that the deposits are protected in compliance with the law, but only 23% of landlords use an agent. Landlords who are members of landlord associations are the most prepared for the new schemes.
“Remember, it’s the personal responsibility of the landlord to comply, not the agent’s," Salusbury added. "The court can order a landlord who fails to protect a deposit to hand over to the tenant three times amount of the deposit. The landlord will also be unable to regain possession of the property using notice-only grounds for possession under Section 21 of the Housing Act 1998 – so the consequences can be very serious.
“Taking a deposit is one of the few safeguards available to landlords, and 82% of landlords are currently holding deposits worth an estimated £1.2 billion. While a minority of landlords may be discouraged from taking a deposit, or letting their property, the majority need to familiarise themselves with the new rules and choose the best scheme for their purposes.”
From 2005 to 2006 one in five tenants whose deposits had not been returned, felt they had been withheld unjustifiably. The usual reasons cited by landlords for not returning deposits was damage to property, cleaning required, and unpaid bills.
