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FAQs: Landlords and deposits

 

What do landlord deposits cover?

A new tenant is required to pay a deposit, a sum of money usually equivalent to a month’s rent, to a landlord at the commencement of the tenancy. This deposit is intended as security for the landlord, in case the tenant damages the property, causes mess or fails to pay the rent. However, a landlord is not permitted to keep the deposit if the property only suffers normal wear and tear.

Are landlord deposit schemes compulsory?

Since 2007, a landlord must protect the tenant’s deposit within 14 days of payment through one of the approved schemes, if the landlord agreement is for an assured shorthold tenancy. The landlord should tell a tenant within ten days of the end of the tenancy, how much of the deposit they are returning. Thereafter, if there is a dispute between the tenant and landlord, any part of the original deposit withheld should remain protected in the approved scheme, until the dispute is settled, usually through ADR.

What is a custodial based deposit scheme?

A tenant’s deposit can be held by the Deposit Protection Service (DPS) in a bank account, a free service for landlords. When the tenancy ends, the service will release the agreed amount of the deposit to the landlord or tenant. An overseas-based landlord must use the custodial DPS scheme; unless they employ a UK-registered letting agent to manage the tenancy.

What is an insurance-based deposit scheme?

These schemes mean that the landlord or their agent hold the tenant's deposit and pay a fee to insure it. If the landlord does not return the amount owed at the end of the tenancy, if they go out of business for example, the insurer will pay the tenant and pursue the landlord for recompense. The insurance-based providers are called The Dispute Service and Tenancy Deposit Solutions (TDS). Only landlords who belong to a professional body or trade association can use the TDS scheme.

What is a rent deposit scheme?

A rent deposit scheme means a third-party, such as a council, can loan a landlord deposit to a tenant. If the tenant vacates the property, the landlord can keep the deposit in place for the next tenant, with the agreement of the third party. If a landlord’s deposit is paid in instalments under a rent deposit scheme, the landlord must use an insurance-based deposit scheme.

If you would like to obtain legal advice on security deposit law, Caven can put you in touch with a local specialist landlord and tenancy solicitor free of charge. Please call us on 0808 129 5759.

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