Tenancy Deposit Protection - Are you aware of your obligations?
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21st March 2007

Tenancy Deposit Protection - Are you aware of your obligations?

It still seems that there is still a little confusion regarding the implementation of the tenancy deposit scheme for landlords operating buy to let properties. From the 6th April 2007, all deposits taken by landlords and letting agents must be protected by a government authorized tenancy deposit protection scheme. The government has introduced this legislation to help protect tenants monies and enable them to get all or at least part of their deposit back at the end of the tenancy. Landlords that have not taken steps to protect their tenants money will breaking the law and may be liable to refund 3 times the deposit to the tenant.  The government has stated that the objective of the scheme is as follows:-

  • To allow tenants to get all or at least part of their deposit back if and when they are entitled to it and to give them clear information what to do if there is a dispute

  • To encourage both tenants and landlords to make a clear agreement at the start of the tenancy agreement the actual condition of the property.

So what are the options available to Landlords to comply with the legislation?. There are two types of scheme available both approved by the government.

  • An Insurance backed scheme

    A custodial scheme

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    • Under the insurance backed scheme, the landlord or agent takes the tenants deposit and pays it in to their bank account, then then must pay a premium to an insurance company to cover the amount of the deposit. Under the custodial scheme, the tenant pays the deposit to the landlord or the agent who then pays the money in to the custodial scheme. As well as the above, the landlord or agent is obliged to give the tenant the following information

    • Contact Information relating to the tenancy deposit scheme

    • Contact information for the Landlord or agent

    • A guide to how to apply for the release of the information

    • An explanation as to the purpose of the deposit

    • Information as to the dispute resolution service

     

    The above information must be provided to the tenant within 14 days. Landlords and letting agents wanting more information on the Tenancy Deposit scheme have two valuable sources of information.  This is the official government organized site and they have a variety of information available and provides details of the three contracts they have awarded to run schemes, two of them are insurance backed and one is custodial. There is a opposability that more schemes will be implemented in the future.

    As well as the above, sterling work is being done by the Association of Residential Letting Agents -  they are seeking to educate their members by providing supporting literature and to encourage steps to avert or minimize any cause for dispute in the first place. This prevention rather than cure seems to be the best idea and whilst all three of the government backed schemes must have a dispute resolution service, it is in everyone’s interest if this is seen as a last resort. Whilst it seems most industry professionals are aware of the new requirements, it is going to take a little time for this to filter down to landlords and tenants and ARLA are providing information that can be used by both landlords and tenants to assist in this matter.