Tenant Deposit Scheme

Part 6 Housing Act 2004

Landlords entering into Assured Shorthold Tenancy agreements are  required safeguard their tenant’s deposit through an authorised Tenancy Deposit Scheme. This applies to all new assured shorthold tenancies from 6th April 2007.

The idea behind a Tenancy Deposit Scheme is that:

  • It safeguards the tenant’s deposit throughout any dispute and court proceedings.
  • Should a dispute in relation to the repayment of the deposit arise at the end of the tenancy, the scheme must make available Alternative Dispute Resolution (ADR) so that the parties can attempt to reach an agreement between themselves.

Landlords are not entitled to take a deposit from a tenant under an Assured Shorthold Tenancy unless it is covered by one of the two types of Tenancy Deposit Schemes, namely, a Custodial scheme, or an Insurance-based scheme.


On receiving a deposit, the Landlord must:

  1. Deal with the deposit in accordance with an authorised scheme.
  2. Comply with the initial requirements of the scheme within 14 days.
  3. Give the tenant the appropriate information in relation to the scheme and their deposit within 14 days of receiving the deposit (i.e. what scheme the deposit is held under or would be held under should a dispute arise. The tenant is advised to check that their deposit is held by that scheme).

It is very simple to administer. Attached are details of the 3 recognised schemes.

Failure to comply with a Tenancy Deposit Scheme

Failure to comply with the above will prevent the Landlord from regaining possession using the accelerated possession procedure following service of a notice under section 21 of the Housing Act 1988. This will slow up the process.

The tenant would also be entitled to make an application to the cour for an order that the Landlord repay the deposit to them or pay it into a custodial scheme. If the court is satisfied that the requirements have not been complied with OR is not satisfied the deposit is being held in accordance with an authorised scheme, the court must make an order requested by the tenant and order the Landlord to pay an amount equivalent to three times the deposit to the tenant within 14 days.

The provision is mandatory. So far, decisions have ben made in the county court. In Stankova v. Glassonbury 10 March 2008, Gloucester County Court, District Judge Singleton ordered the landlord to pay £1800 + £75 costs in respect of three times the deposit plus the court fee. In awarding the monies, the judge accepted the tenant’s argument that the award was a strict liability penalty, and that consequently there was no provision for counterclaim for outstanding rent arrears or other arguments about the return or retention of the deposit on the basis that a statutory scheme included arbitration for disputed about returning or retaining deposit monies.

Details of the Schemes

There are 3 schemes, 2 insurance schemes and a custodial scheme.

Custodial scheme
The tenant pays the required deposit to the Landlord. Under this scheme, the Landlord is required to pay the whole amount of the deposit into the scheme and the deposit is then held throughout the tenancy by the System Administrator. The deposit will only be repaid on the Administrator being satisfied it is due.
Insurance-based Schemes

Insurance-based schemes will to take out insurance against this risk and therefore, Landlords who deposit with them may be asked to contribute towards this charge.

The Landlord receives the deposit from the tenant but holds it himself, only transferring it (plus the interest gained on it) to a scheme if a dispute arises at the end of the tenancy. The scheme then hold the deposit until the dispute is resolved and will distribute it to each party as above.

Should the Landlord fail to pay the deposit to the scheme at the time of a dispute, the scheme will pay out the proportions owed to the tenant by agreement or by court order and the scheme administer will ensure that the scheme is reimbursed by the Landlord. Insurance-based schemes will obviously have to take out insurance against this risk and therefore, Landlords who deposit with them may be asked to contribute towards this charge.

Should less than the whole deposit plus interest held be agreed or ordered to be returned to the tenant, the scheme must return the remainder of the monies to the Landlord. Where more then the total deposit plus interest is agreed or ordered by the court to be awarded to the tenant, the scheme must pay the tenant the top-up and ensure reimbursement from the Landlord within 10 days.

On returning any deposit to the landlord following the dispute, the interest gained on the monies whilst being held by the scheme administrator will be returned at a rate set by the Government. Any additional interest earned can be retained by the scheme administrator and can be used to fund the administration of the scheme.

Deposit Protection Service (The DPS)

The DPS is the only custodial deposit protection scheme, 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 will be supported by a dedicated call centre and an independent dispute resolution service.

TDSL is a partnership between the National Landlords Association and Hamilton Fraser Insurance. This insurance-based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits. Letting agents can also join the scheme.

TDS is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the lettings industry. The new scheme enables letting agents and landlords to hold deposits.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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