Keep That Landlord Off Your Cash!

With the new tenancy deposit scheme in place, will we be able to keep unscrupulous landlords off our deposits?

If you're one of the millions of people currently living in a rented home in the UK, you'll probably hate the bit where you hand over that extra bag of £50 notes to your landlord to pay for his holiday/new car/apartment in the Bahamas...

Well, alright, taking my cynical hat off what I'm referring to, of course is the refundabledeposit required by landlords. This is held in case you fail to pay your rent or damage anything etc. It's a "you break, you pay" kind of deal -- leave the property in the condition you found it in and you should get all of your deposit back.

The thing is, while most landlords are reputable and refund deposits to good tenants without quibble, there are unfortunately some that lack such integrity. Indeed, I myself have met such landlords.

Years ago when I was a lowly student sharing a house with four others, deposits were considered a bit of a standing joke. It was widely understood that no student ever got all of their money back, regardless of how careful a tenant you were as unscrupulous landlords would deduct money for just about anything. In fact, I remember being charged for professional carpet cleaning for a paint stain left by the landlord himself!

Anyway, I remember thinking even back then that the landlord's deposit scheme seemed shockingly unregulated. It seemed that practically anyone with a rentable house could call himself a landlord, take an arbitrary sum (often thousands of pounds!) from you for safe keeping, and effectively be free to give back as much or as little as he pleased upon your departure. Indeed, it seems bizarre when there are rules and regulations protecting us from losing far smaller sums.

Tenancy Deposit Scheme

Things however have recently changed. As of 6 April 2007 the Tenancy Deposit Scheme (TDS) came into force, for all assured shorthold tenancies (the most common type of private rentals).

So what does this mean? Well, you still have to pay a deposit, but this money will now be protected by the scheme. The aim is to allow tenants to receive back all or part of their deposit, when they are entitled to it, make disputes easier to resolve, and make clear the condition of a property right from the start.

There are two types of Tenancy Deposit Scheme:

1. Insurance based scheme

In this scheme the tenant pays his deposit to his landlord. The landlord then retains the deposit and pays insurance premiums to secure eventual repayment by the scheme to the tenant.

2. Custodial Scheme

Here the tenant pays his deposit to his landlord, but in this case the landlord pays the deposit into the scheme, where it stays until the tenancy runs out. The scheme is free to use (it is funded by interest made on the money).

Regardless of the scheme chosen, the landlord or agent must give the tenant details about how their deposit is protected including:

• the contact details of the tenancy deposit scheme selected
• the landlord or agent's contact details
• how to apply for the release of the deposit
• information explaining the purpose of the deposit
• what to do if there is a dispute about the deposit

So what then happens at the end of the tenancy?

Well, the landlord/agent and tenant come to an agreement regarding how much of the deposit must be returned. If the insurance scheme was chosen, the landlord or agent must return the deposit within 10 days. If the custodial scheme was used, the agreed sum should be paid directly to the tenant from the scheme within the same time frame. What's more, as the interest earned in the custodial scheme is used to fund it, in most cases any excess is paid to the tenant, too.

What if there's a dispute?

Both schemes offer a free service to help resolve dispute known as the Alternative Dispute Resolution (ADS) service. Landlords using the insurance based scheme must pay the disputed amount into the scheme for safe keeping until the dispute is resolved (those using the custodial scheme simply leave the money in the scheme).

And what if landlords or letting agents fail to comply?

You may be wondering what would happen should landlords or agents simply choose to not comply with the TDS. Well, tenants will have grounds to apply to their local county court, which can order a landlord or agent to either repay the deposit to the tenant, or protect it in a scheme.

What's more, the court will have the right to order the landlord or agent to pay compensation to the tenant equivalent to three times the amount of the deposit. Blimey! And as a final blow landlords could lose the right to obtain possession against the tenant by serving a two-month notice period.

So it all sounds fine and dandy for the tenant, but what about the landlord? Well, with no obligations on the tenant there's not much in the scheme for them, really. However, it can be argued that it won't make that much difference for a reputable landlord anyway, and it will hopefully make the unscrupulous ones think twice before snaffling our money for this and that.

More: Tenancy Deposit Scheme