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Why do landlords need a tenancy deposit protection scheme?

All landlords in the UK must hold their tenant’s deposit in a tenancy deposit protection scheme. However, if you’re just starting your journey into lettings, the ins and outs of this might be tricky to understand.

Explore our guide to find out what you need to know about tenancy deposit protection schemes and why they are important.

Learn about CJ Hole’s managed letting service

What is a tenancy deposit?

Also known as a security deposit, a tenancy deposit is a fixed sum that a tenant pays ahead of moving into their new home. This is to protect the landlord from any out of pocket expenses at the end of the tenancy - for instance, damage to the fixtures, fittings or included furniture.

How much are tenancy deposits?

The deposit amount will differ between properties. However, the law states that a tenancy deposit can’t be more than five weeks’ rent, or six weeks if the rental value is over £50,000 a year.

When are tenancy deposits paid?

Tenancy deposits are normally paid at the start of the tenancy, after the tenancy agreement is signed but before the tenant moves in. Typically, a deposit would be paid at the same time as the first month’s rent.

What is a tenancy deposit protection scheme?

Once the tenancy deposit is paid, a landlord or letting agent has 30 days to register it with a government-approved tenancy deposit scheme.

The tenant must be told where their deposit is stored. This information will be included under the prescribed information.

Why do landlords need a tenancy deposit protection scheme?

Since 2007, deposits on properties let on an assured shorthold tenancy (AST) must be registered with a government-approved deposit protection scheme. This protects a deposit during the tenancy.

This is particularly important if there are any disputes at the end of the tenancy, as the tenancy deposit scheme will safeguard the deposit until matters are resolved.

How to register tenancy deposit protection scheme

Landlords and letting agents must only use a government-backed deposit protection scheme. In England, these are:

When it comes to deposit protection schemes, landlords have two options: custodial or insured.

With a custodial scheme, a tenant’s deposit is held securely for no extra charge. An insured deposit scheme, on the other hand, involves the landlord or agent keeping the deposit in their own bank account, and they pay to 'insure' it.

For some landlords, the custodial scheme is the obvious choice because it's cost-free and easy to navigate. However, if landlords opt for an insured scheme, they can keep the deposit funds in their bank account, including any interest it might accrue.

What can happen if landlords don’t use a tenancy deposit protection scheme

It is important for landlords or their letting agents to keep their tenancy deposit in one of the approved deposit protection schemes.

Failure to do so could result in a potential fine of up to three months' worth of rent, It might also affect the landlord's ability to issue a valid Section 21 notice, evicting their tenants.

What information do landlords have to give tenants after deposit?

Within 30 days of the deposit being paid, tenants should receive the following information:

  • The address of the rented property

  • How much deposit has been paid and how it is protected

  • The name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service

  • The landlord and/or letting agents’ name and contact details

  • The name and contact details of any third party that’s paid the deposit

  • More information about the circumstances in which the landlord would keep some or all of the deposit

  • How to apply to get the deposit back

  • What to do if you cannot get hold of the landlord at the end of the tenancy

  • What to do if there’s a dispute over the deposit.

When are deposits returned?

Providing tenants meet all the requirements set out in their tenancy agreement, all bills have been paid and there’s no damage to the property beyond fair wear and tear, deposits should be returned within ten days of the initial request.

A detailed entry and exit property inventory is an essential component to this. This document will be completed at the start and end of a tenancy to provide a detailed description of the state of the property and its fixtures and fittings when the tenants moved in.

Can costs be deducted from the tenancy deposit?

If the tenant leaves the property with any unpaid bills or rent, or if there are any missing or damaged inventory items, the cost of these can be deducted from the deposit. Likewise, if the property requires a professional cleaner or removals firm for left-behind furniture.

However, there are some caveats to this. The landlord is responsible for the overall upkeep of the property's structural components - such as the walls, roofs, and drain pipes, and essential amenities like heating, electrical wiring, sinks, and toilets. In most cases, these maintenance costs cannot be taken from the tenant's deposit.

That said, tenants are also responsible for looking after the property and promptly notifying the landlord of any problems to prevent them from worsening. For more information about whether to return your tenant’s full deposit, speak to your local CJ Hole branch.

Related: How tenants can get a tenancy deposit back

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