Who are running the schemes?

On 22 November 2006, the Government awarded contracts to three service providers, which are:

The Deposit Protection Service (DPS)

DPS is the only custodial deposit protection scheme. It is free to use and open to all landlords and letting agents. The service is funded entirely from the interest earned from deposits held. Landlords and Letting Agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme is supported by a dedicated call centre and an independent dispute resolution service. For more information, visit www.depositprotection.com (external link) or call 0870 707 1707.

MyDeposits

MyDeposits is an insurance-based scheme sponsored by the National Landlords Association and administered by Hamilton Fraser Insurance Services. It is open to all landlords and letting agents, provided the deposit is held by a landlord residing, or an agent established, in the UK.

A fee is payable to insure the scheme against any misappropriation of the deposit. The scheme is supported by a dedicated call centre and an independent dispute resolution service. For more information, visit www.mydeposits.co.uk (external link) or call 0871 703 0552.

The Tenancy Deposit Scheme (TDS)

TDS is an insurance-based deposit and dispute resolution scheme. From April 2009, TDS is limiting membership to landlords and letting agents who belong to a professional body which requires its members to take client money protection insurance. The deposit must be held by a landlord residing, or an agent established, in the UK.

A fee is payable to insure the scheme against any misappropriation of the deposit. The scheme is supported by a dedicated call centre and an independent dispute resolution service. For more information, visit www.tds.gb.com (external link) or call 0845 226 7837.

Custodial Scheme How does the custodial scheme work?

The tenant pays the deposit to the landlord, as now.  But the landlord then pays the deposit into the custodial scheme. `At the end of the tenancy, if the landlord and tenant agree how the deposit should be apportioned, they will tell the scheme, and the scheme will pay out the money as agreed. Refer to the Disputes section for what happens in the event of a dispute in the custodial scheme.

Will landlords have to pay to transfer the deposit to the custodial scheme?

No, apart from any bank charges that the landlord, or his agent, may charge. The custodial scheme is free to use by landlords.

How is the custodial scheme paid for?

Deposits held in the custodial scheme earn interest, which the scheme uses to pay for its running costs. A proportion of the interest earned on a deposit will be paid to the person entitled to the deposit at the end of the tenancy. Where the deposit is divided between the landlord and tenant, the interest will be allocated pro-rata.

What happens if the landlord or tenant cannot contact the other party to agree how the deposit should be returned (eg the other party has moved and has given no forwarding address, and his whereabouts are not known)?

Either the landlord or the tenant can make a single claim application to the scheme for the return of all or part of the deposit in these circumstances.

The party claiming must make a statutory declaration in which he has to provide certain information to the scheme about the tenancy and the steps he has taken, unsuccessfully, to try to contact the other party. He must also indicate whether or not he agrees to the ADR service being used (in case the other party turns out to be contactable and contests the claim).

What happens where both parties are contactable but one party fails to respond to the other's written notice regarding the repayment of the deposit?

If both the landlord or tenant are contactable, but one party fails to respond to the other's written notice regarding the repayment of the deposit within 14 calendar days (30 days with effect from 2nd April 2012) of the end of the tenancy, then one party can make a single claim application to the scheme for the release of the deposit. Again, the party making the application needs to make a statutory declaration in which he must provide certain details about the tenancy and the steps he has tried to take to agree the apportionment. He must also indicate whether or not he agrees to the ADR service being used (in case the other party responds and contests the claim).

What does the scheme do when it receives a single claim application?

On receipt of the application the scheme will send a copy of the application and statutory declaration to the other party. The scheme will also send the other party a notice warning him that if he does not indicate whether or not he wishes to use the ADR service, then he will be treated as having consented to the use of the service (if he is contactable). If the scheme receives no response from the other party, then the scheme will pay out the requested claim amount. In contrast, if the scheme is satisfied that the other party has received the documents, but gets no response from him as to whether he agrees to the use of the ADR service, he will be treated as having agreed to use the ADR service. (Note though, that if he objects to the use of the service then he cannot be forced to use it). The scheme will then continue to hold the deposit until such time as the parties have either agreed how it should be divided, or the ADR service or court has reached a decision.

Insurance-based Scheme How does the insurance-based scheme work?

The tenant pays the deposit to the landlord, who retains the deposit and pays a fee to the scheme, which will insure against the landlord unlawfully retaining the deposit at the end of the tenancy. At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord will return it in the agreed way and inform the scheme that the protection of the deposit can cease. Refer to the Disputes section for what happens in the event of a dispute in the insurance-based scheme.

How much are the fees?

The fees for both insurance-based schemes are fixed by the scheme providers and are available on their websites. See:  

Are the insurance-based schemes open only to landlords who are members of a trade body or professional organisation?

The schemes have established membership criteria for landlords to join and protect deposits with them. MyDeposits is open to all agents and landlords. However from April 2009, the Tenancy Deposit Scheme (TDS) is limiting membership to landlords and to letting agents who belong to a professional body which requires its members to take client money protection insurance.

At the end of a tenancy, what happens if the tenant cannot contact his landlord?

This will be rare.  However, if the tenant considers that he is due all or part of the deposit but he receives no response from the landlord to his request for its return then the tenant should notify the scheme that he has requested its return but has not received it within 10 days of requesting it. At the same time, he must tell the scheme whether he is willing for any dispute over the amount to be repaid to be resolved through the ADR service.  The scheme will then direct the landlord to pay the disputed deposit amount to the scheme to be held in a designated account until the dispute is resolved.  The scheme will also send the landlord a notice in which he will ask the landlord whether he accepts that the tenant is entitled to the money (or part of it) that he is claiming and if not, whether he agrees to the dispute being resolved through the use of the ADR service.  

What if the landlord doesn't receive the documents from the scheme?

The direction from the scheme to the landlord to pay over the disputed deposit amount is treated as having been received two days after it is sent by first class post to the address last notified to the scheme as the landlord's address for correspondence. But the notice regarding how the landlord wants to resolve the dispute (i.e. ADR or court) is treated differently.  If the scheme receives no response to the notice from the landlord indicating whether he accepts the claim of the tenant (or a part of it) then the scheme must treat that lack of response as an indication that the landlord does not accept the tenant's claim. If the scheme is satisfied that the landlord has received the notice (but for whatever reason is not responding to it) then the landlord will be treated as having agreed to the dispute being resolved though the use of the ADR service. The scheme will inform the tenant that this is the case and the scheme will then wait until the decision of the ADR service has been made. Once the decision has been made, and if the decision is that the tenant is entitled to the return of some or all of the deposit then if the landlord hasn't yet sent the disputed funds to the designated account the scheme must send another direction to the landlord telling to pay the amount that is due to the tenant.  

However, if the scheme is not satisfied that the landlord received the notice, the scheme cannot treat the landlord as having consented to use ADR and the ADR service cannot be used. The scheme must inform the tenant, who will need to obtain a decision from the court as to whether or not he is entitled to the return of any or all of the deposit.

The schemes are insured against a landlord's failure to comply with a direction to pay the disputed deposit into the scheme's designated bank account, so even if the landlord is uncontactable and has not paid any money to the scheme as directed, the tenant will get back the amount of the deposit he is entitled to, in accordance the court's or ADR service's decision.

Can a landlord or agent pass on the cost of joining an insurance-based scheme to the tenant?

The Government's intention was that both types of scheme should be free to tenants and that landlords who chose to use an insurance-based scheme should absorb the fee for protecting the deposit as part of the overall costs of operating their business. However, there is nothing in the legislation to prevent landlords passing on these costs.

What happens when an agent, who has protected a deposit on behalf of a landlord, goes out of business?

The primary intention of the legislation is to protect the tenant and ensure they get their deposit back when they are entitled to it.

If the agent protected the deposit under the custodial scheme (The Deposit Protection Service), the deposit is held by the DPS and will remain protected by them. The landlord should notify the DPS in writing that the agent has gone out of business and supply proof of ownership of the property that is the subject of the tenancy and a copy of the tenancy agreement to evidence the landlord is the owner of the property. The DPS will then be able amend its records to ensure that the agent will have no further involvement with the tenancy and in future will deal direct with the landlord.

If the agent protected the deposit under one of the two insurance-based schemes (MyDeposits or the Tenancy Deposit Scheme), the deposit is usually held by the agent. If the agent goes out of business the deposit remains protected by the scheme until the scheme goes through the statutory procedure for terminating the agent's membership of the scheme. That procedure involves giving notice to the tenant that protection of his deposit under the scheme will cease, explaining the effect of the termination and explaining his rights if the landlord fails to make alternative arrangements so that the deposit remains protected in one of the three schemes (or is returned to the tenant). Once the scheme has decided that it will stop protecting a deposit or cancel the membership of a landlord or his agent in the scheme, it must give at least two months' notice of that decision to the landlord, tenant and any agent.  

Under the rules of the Tenancy Deposit Scheme, the protection afforded to deposits collected and registered under the scheme will continue, including eligibility for dispute resolution:

for a period of 12 months from the initial commencement date of the tenancy or
for a period of 3 months from the date of cessation of Membership

whichever is the later, but only until the landlord/agent has made alternative arrangements for the protection of any deposit.

Under the rules of MyDeposits, the protection afforded to deposits collected, registered and paid for under the scheme will continue, including eligibility for dispute resolution:

for a maximum period of 90 days from the date of cessation of Membership; or until the deposit is re-protected by the landlord individually or elsewhere in another scheme

whichever is the lesser period of time. Deposit disputes will only be accepted if the tenancy is at its contractual end and the contractual end date falls at any time before the end of the 90 day period.  

At the end of the tenancy the landlord is legally responsible for the return of the deposit whether or not they have managed to retrieve it from the agent.

It is important for all landlords to understand that there is always a commercial risk when using an agent. We would advise anybody using a letting agent to check whether they have client money protection insurance or whether they belong to a trade body or accreditation scheme such as the Association of Residential Letting Agents, the National Association of Estate Agents, the National Approved Letting Scheme or the Royal Institution of Chartered Surveyors. Agents belonging to these bodies are bonded, which means that the money paid to them is insured against theft and fraud and they have redress schemes if anything goes wrong.