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Most landlords nowadays will take a ‘damage deposit’ from tenants to hold for the duration of the tenancy. Any deposits taken with an AST since 6th April 2007 have to be protected in one of three government-authorised deposit protection schemes.

Most landlords nowadays will take a ‘damage deposit’ from tenants to hold for the duration of the tenancy. Any deposits taken with an AST since 6th April 2007 have to be protected in one of three government-authorised deposit protection schemes. Deposits taken before that date will only need registering if the landlord wishes to serve a valid section 21 notice.

This subject will explain the factors to take into account when deciding how much to ask for as a deposit. It will also explain how tenancy deposit protection works, at both the start and end of the tenancy. It is not intended to cover the specific rules of each scheme. Once you have selected a scheme, the specific rules to that scheme should be obtained from the provider.

An alternative option to taking a deposit is to ask for a guarantee from a third party (such as a parent or the local authority) that they will cover any costs arising to the landlord from rent arrears or damage to the property. This can be particularly useful where the tenant is on a low income and may have difficulty putting together an amount of money for a deposit.

Finally, if a tenant is very interested in taking a property a landlord may want to ask for a holding, or reservation fee to secure the property for that tenant until any reference checks are complete and a tenancy agreement is signed. A holding fee does not have to be protected in a tenancy deposit scheme unless it is subsequently used as a tenancy deposit. This subject will introduce you to good practice in taking holding fees.

** See Additional Resources for a Guide on what may be deemed fair Wear and Tear and a NEW Guide, written by all three Schemes, on Alternative Dispute Resolution

** Please Note: Changes to these rules and procedures came in on 6th April 2012. These pages have been updated, and you can also see the section at the end of this subject outlining all the changes.

Also, the Deregulation Act 2015 contains important changes to deposit protection legislation and now clarifies the issues created by two recent court cases of Superstrike vs Rodrigues and Charolambous vs Ng.

A summary of the implications of the Deregulation Act 2015, and what you need to do in order to comply is contained in the pages below.

Many landlords feel that the holding of a deposit decreases the chances of abandonment, by acting as an incentive for the tenant to terminate the agreement correctly. The deposit also gives security in case the tenant leaves the property owing rent or to pay for any damage or unpaid household bills at the end of the tenancy.

Many landlords feel that the holding of a deposit decreases the chances of abandonment, by acting as an incentive for the tenant to terminate the agreement correctly. The deposit also gives security in case the tenant leaves the property owing rent or to pay for any damage or unpaid household bills at the end of the tenancy.

Since April 2007 it is now illegal for a landlord to ask for anything other than a sum of money to be used as a deposit. Rent guarantee schemes are still legal but offers of jewellery, fine wines or other luxuries to be used as security against damage or non-payment of rent are not allowed.

The amount of the deposit should be negotiated with the tenant. Note that in some cases tenants will leave without paying the final month’s rent, on the basis that this should be offset against the deposit held. This leaves the landlord out of pocket for any damage incurred. For this reason it is advisable not to make the deposit equal to exactly one month’s or week’s rent.

However, if a deposit of more than two months’ rent is required, it could be regarded as a premium that may give the tenant a right to give the tenancy to someone else or to sublet.

Deposits can cover:

Deposits can cover:

• damaged items
• stolen items
• outstanding debts attached to the property
• failure of the tenant to carry out obligations set out in the tenancy agreement, such as cleaning
• non-payment of rent

When assessing the damage done to the property during the tenancy the landlord must make allowance for fair wear and tear. Wear and tear is the sort of damage which is the result of normal living in the property. Although it is reasonable to expect the property to be clean and tidy, a landlord cannot expect to receive a property back in exactly the same condition as it was at the start of the tenancy. For example, paintwork will be less fresh and carpets may be worn. The extent of wear and tear will vary, depending on the length of the tenancy. The cost of repairing damage due to fair wear and tear is not recoverable from a deposit.

If a landlord lets a property on an Assured Shorthold Tenancy, on or after 6th April 2007, and takes a deposit from the tenant as security against non-payment of rent, damage during the tenancy or the performance of any other of the tenant’s obligations or liabilities, that deposit must be protected in a Government-authorised protection scheme.

If a landlord lets a property on an Assured Shorthold Tenancy, on or after 6th April 2007, and takes a deposit from the tenant as security against non-payment of rent, damage during the tenancy or the performance of any other of the tenant’s obligations or liabilities, that deposit must be protected in a Government-authorised protection scheme.

If the landlord does not protect the tenancy deposit or does not give the tenant certain information about the protection of their deposit it will not be possible to use a section 21 notice to get possession of the property at the end of the tenancy. Any section 21 will be unenforceable unless the deposit has been repaid in full (or with agreed reductions), or following a tenants claim being decided, withdrawn or settled.

In addition, if the tenant believes at any time during the tenancy that their deposit has not been protected or he has not been given the necessary information about deposit protection he can take the landlord to court. If the landlord is found guilty the court will order him to pay the original deposit amount either to the tenant or into the custodial deposit scheme. In addition the court will order the landlord to pay between one and three times the deposit amount to the tenant as a penalty. It is no longer fixed at three times the deposit. The penalty would be payable even if the landlord complies with the scheme requirements before the hearing of the tenants claim.

The tenant is able to apply to the court for a penalty payment at any time during the tenancy, even after the tenancy has ended. They can do this up to 6 years after they have moved out, meaning the landlord is at risk for all that time, if they have not protected the deposit, and sent the required information to the tenant, within the 30 days.

Several deposit protection schemes have now been authorised by the Government, Links can be found in the Additional Resources section: 

• MyDeposits (Insured and Custodial)
• Deposit Protection Service (Custodial and Insured)
• Tenancy Deposit Scheme (insured)

The landlord must protect the deposit within 30 days of receiving it. After the 30 days, the landlord can still protect the deposit, but will no longer have any defence to a claim by the tenant for the penalty payment. Further, the landlord cannot serve a valid section 21 notice until the deposit has been returned to the tenant OR a court has already adjudicated on the late protection.

If he is using the custodial scheme he protects the deposit by handing it over to the scheme.

Landlords who use one of the insurance-based schemes must notify the scheme that they have taken a deposit and pay a fee to use the scheme. The landlord can then hold onto the deposit throughout the tenancy.

In June 2013, a court of appeal in the Superstrike Ltd v Marino Rodrigues case threw doubt on whether Statutory Periodic Tenancies that have been created by default at the end of the initial term of an Assured Shorthold Tenancy, are new tenancies.

The landlord must also give specific information to the tenant within 30 days of the start of the tenancy, no matter which protection scheme he uses for the deposit. The information to be given is set out in regulations, and comprises:

The landlord must also give specific information to the tenant within 30 days of the start of the tenancy, no matter which protection scheme he uses for the deposit. The information to be given is set out in regulations, and comprises:

• the full contact details of the authorised tenancy deposit scheme which is being used;
• any information which is contained in a leaflet supplied by the scheme administrator to the landlord which explains how tenancy deposit protection works generally;
• information about how the the deposit will be repaid at the end of the tenancy;
• information about the procedures that apply under the scheme where either the landlord or the tenant is not contactable at the end of the tenancy;
• the procedures that apply under the scheme if there is a dispute about the repayment of the deposit;
• information about how a dispute relating to the deposit can be resolved without recourse to litigation;

Also, information about the tenancy for which the landlord has taken the deposit

(i) the amount of the deposit paid;

(ii) the address of the property to which the tenancy relates;

(iii) the full contact details of the landlord;

(iv) the full contact details of the tenant, including the details that should be used by the landlord or scheme administrator in order to contact the tenant at the end of the tenancy;

(v) the full contact details of anyone who paid the deposit on the tenant’s behalf;

(vi) the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy; and

(vii) a signed certificate from the landlord confirming that the information he has provided is accurate to the best of his knowledge and belief and he has given the tenant the opportunity to sign confirmation that the information provided by the tenant is accurate to the best of his knowledge and belief. If the Landlord is a company the certificate must be signed either by two authorised signatories of the company OR by a director of the company in the presence of a witness who attests the signature.

At the end of the tenancy, if the landlord and tenant agree on the amount of deposit to be repaid, they can apply to the relevant protection scheme to release the deposit.

If the deposit is held in the custodial scheme it will be released in accordance with the agreement both sides have reached within 10 days of notification. Both landlord and tenant have to apply for the funds to be released.

At the end of the tenancy, if the landlord and tenant agree on the amount of deposit to be repaid, they can apply to the relevant protection scheme to release the deposit.

If the deposit is held in the custodial scheme it will be released in accordance with the agreement both sides have reached within 10 days of notification. Both landlord and tenant have to apply for the funds to be released.

If the deposit is protected by one of the insurance-based schemes the landlord will already hold the deposit. The landlord can distribute the deposit once he and the tenant have reached agreement on how it should be split. The landlord then has to notify the scheme that he wishes to unprotect the deposit. The scheme will check with the tenant that this has been agreed before closing the protection for that deposit.

If there is a dispute about how the deposit should be split, the landlord or agent should advise the tenant of the deductions that they are making and return the undisputed proportion of the deposit to the tenant as soon as possible.

It will help the tenant to understand the situation better if this advice is in writing and includes an explanation and justification for any of the deposit that is being withheld.

If there is a dispute about how the deposit should be split, the landlord or agent should advise the tenant of the deductions that they are making and return the undisputed proportion of the deposit to the tenant as soon as possible.

It will help the tenant to understand the situation better if this advice is in writing and includes an explanation and justification for any of the deposit that is being withheld.

Custodial Scheme

If the deposit is held in the custodial scheme both parties should apply to the scheme for the undisputed proportion to be released and notify the scheme of the remaining amount which is in dispute. The agreed amount will be released and the disputed amount will continue to be protected until the dispute is resolved. Once the scheme is notified of the outcome of the resolution it will release the money within 10 days.

Insurance-based scheme

If the deposit is protected by one of the insurance-based schemes the landlord will be holding the deposit. If the tenant does not accept the deductions made by the landlord/agent, the tenant will be able to notify the scheme that they intend to raise a dispute. The scheme will provide the tenant with suggestions aimed at helping the tenant resolve their dispute amicably with their landlord/agent.

If attempts to resolve matters amicably are unsuccessful, the tenant can make their dispute official and complete the necessary procedures within certain timescales. They will need to complete and return a ‘claim form’ with supporting evidence within 10 days. Once this has been received, the insurance scheme will contact the landlord/agent and request them to submit the disputed amount of the deposit (which may be all or part of it) to the scheme for them to hold whilst the dispute is resolved. Once the scheme has requested the disputed amount the landlord/agent has 10 days in which to hand it over.

As well as asking for the disputed amount of money, the scheme will also provide the landlord with a copy of the tenant’s claim form and evidence and ask the landlord to agree that the disputed amount should be repaid to the tenant or, alternatively, provide his own evidence to support his claim.

If the landlord fails to lodge the disputed deposit amount with the scheme then their membership of the insurance scheme will be terminated. As a result he will be forced to use the custodial scheme to protect any future deposits and will have to transfer existing protected deposits into the custodial scheme within a prescribed period. In addition, if the dispute is resolved in favour of the tenant the Scheme will pay the disputed amount to the tenant and claim it from the scheme’s insurer. That insurer will then pursue the landlord for recovery of the disputed amount and the costs of the recovery process.

Alternative Dispute Resolution

For both custodial and insurance based schemes, as part of the claim process both parties will be asked whether they agree to use the free ADR to resolve the dispute.

All three schemes are bound to provide a free Alternative Dispute Resolution (ADR) facility to enable a dispute to be resolved quickly and without the expense of having to go to court. Either party can choose to go to court (with the increased associated costs) instead of using ADR but if both parties agree to use ADR they have to agree to be bound by the outcome. They do not have the right to go to court to appeal against the decision reached through alternative dispute resolution.

If both parties agree to use ADR the impartial adjudicator will have 28 days to reach a decision. This decision is final and binding.

No matter which scheme is being used, the release of the deposit is dependent on agreement from both landlord and tenant. There may be times when one side is not available to agree.

No matter which scheme is being used, the release of the deposit is dependent on agreement from both landlord and tenant. There may be times when one side is not available to agree.

Insurance based scheme

Under the insurance-based schemes the landlord will already hold the deposit so if the tenant is uncontactable he can notify the scheme that he wishes to unprotect the deposit. The scheme will contact the tenant at their last known address or the alternative address which they provided when the deposit was originally protected. If there is no response from the tenant the deposit will be released from protection. This does not remove the right of the tenant to contact the scheme to dispute all or part of the deposit.

If the landlord or agent has failed to respond to requests from the tenant for all or part of the deposit to be repaid the tenant can raise a dispute with the deposit protection scheme. The scheme will contact the landlord or agent at their last known address, giving them 10 days to respond. If they fail to respond, the scheme will advise the tenant to go through a default ADR procedure (without the landlord’s evidence being offered) or to go to court and obtain a court order against the landlord.

The landlord is likely to lose their membership of the insurance-based scheme as a result and will be forced to use the custodial scheme to protect their other deposits.

Custodial Scheme

Under the custodial scheme, if it has been at least 14 days since the tenancy ended and there is no resolution and no successful contact between landlord and tenant then either side can apply to the scheme to ask for the deposit to be released.

The application can only be made in one of two circumstances:

• either one side does not have a current contact address for the other; or
• one side has not responded within 14 days of receiving a written notice served by the other seeking agreement on how the deposit should be repaid.

The person who is applying for release of the deposit has to provide a declaration containing:

• the date that the tenancy ended
• the fact that there has been no resolution
• the basis for calculating the amount of the deposit that the person believes he is owed (including any evidence to support the calculations)
• any information that the person has for the other party’s whereabouts
• an agreement to use the alternative dispute resolution if the scheme manages to contact the other party and that party disputes the amount due
• a statutory declaration that if the person is making a false declaration he could be prosecuted for perjury

If the person is applying for release of the deposit because he does not have an up-to-date contact address for the other party, the declaration must include any contact address that the person does have for that party.

If the person is applying for release of the deposit because the other party has not responded to notices seeking agreement on repayment of the deposit, the declaration must include a copy of the notice and supporting evidence of the case.

When the scheme administrator receives the declaration they will pass it on to the other party together with a notice asking whether they agree with the proposal. The notice will also ask that person, if they don’t agree, to indicate how they believe it should be repaid and whether they agree to use ADR to resolve the dispute. Unless they specify otherwise, they will be taken to have agreed to ADR.

The other party has 14 days from receipt of the notice to respond to it. If they agree to the proposal the scheme will release the deposit as agreed. If they disagree with the proposals the disputed amount will be referred to ADR or the courts, depending on which method the parties have agreed to use, and the deposit will be released once a resolution has been reached.

If the scheme does not receive a response within 14 days it will arrange to release the deposit within the next 10 days.

For some tenants, particularly those on low incomes, finding the money for a deposit can be difficult. Another way for landlords to legally arrange security against the risk of rent arrears or damage to property is to seek a guarantee from a third party that they will cover any such costs. Such a guarantee does not have to be put into a deposit protection scheme.

Landlords who are letting to students may wish to seek guarantees from their parents that any costs will be covered.

For some tenants, particularly those on low incomes, finding the money for a deposit can be difficult. Another way for landlords to legally arrange security against the risk of rent arrears or damage to property is to seek a guarantee from a third party that they will cover any such costs. Such a guarantee does not have to be put into a deposit protection scheme.

Landlords who are letting to students may wish to seek guarantees from their parents that any costs will be covered.

A number of local authorities around the country also offer bond guarantee schemes for certain tenants. If at the end of the tenancy the landlord finds that they need to make a claim they would do so via the bond bank.

These types of scheme are generally only available to certain ‘vulnerable’ groups.

For landlords the schemes can:

• provide a guarantee against damage or rent arrears
• provide assistance in getting Housing Benefit processed quickly
• in certain circumstances the bond banks can help find tenants
• offer general advice on landlord and tenant matters

The types of services offered may vary across the country and the local authority should have details of schemes operating in your area.

As the tenant probably has no personal finance at risk there is less of an incentive to avoid the necessary use of the deposit and less incentive to end the tenancy correctly.

A landlord may ask prospective tenants who are very interested in taking a property to pay a holding or reservation fee.The holding fee is particularly appropriate where there is good demand for the property and the landlord may lose other prospective tenants if the applicant causes unnecessary delay or declines the tenancy at the last minute.

A landlord may ask prospective tenants who are very interested in taking a property to pay a holding or reservation fee.The holding fee is particularly appropriate where there is good demand for the property and the landlord may lose other prospective tenants if the applicant causes unnecessary delay or declines the tenancy at the last minute.

A holding fee may also be useful when there will be some time elapsing between the tenant expressing an interest in a property and being able to sign a tenancy agreement. In particular, landlords who are letting to students may also ask for a holding fee if a student views the property early in the year but there is no letting agreement signed until September.

The holding fee shows good faith on the part of a prospective tenant enabling the landlord to take further action in the confident knowledge that the applicant is serious and fully committed to the property. The landlord can cancel any advertising for the letting, tell other applicants that the tenancy has been taken, prepare a letting agreement and take up references and/or credit checks. In the event of the tenancy agreement preparations falling through the landlord may decide to keep this holding fee as recompense for the inconvenience caused. However, unless the prospective tenant is warned of this in writing at the outset it could be constituted an unfair term under the Unfair Terms in Consumer Contracts Regulations.

The amount of any holding fee should reflect the reasonable or approximate amount of the landlord’s loss in the event of non-completion of the agreement. The landlord should always give the prospective tenant a written receipt for the fee held. As well as stating the amount of money it should also list the details of the property or tenancy that the fee relates to.

Once the tenancy agreement is signed it is normal for the holding fee to then form part of the security deposit.

Holding fees do not have to be protected in a deposit protection scheme. However, if they are subsequently used as security deposits when the agreement is signed then at that point the money must be protected.