Landlord Deposit Scheme Explained

Deposit protection schemes were introduced by the government to ensure tenants that had paid a deposit were assured that it would be kept safe throughout the period of the tenancy and once the let had come to an end, guaranteed that they would get it back as long as they met the terms of the tenancy agreement.

The law states that a landlord must use one of three approved deposit protection schemes if they have begun an assured shorthold tenancy since April 2007. If a landlord fails to do this, tenants have the right to take them to court with a possible outcome of the tenant receiving their deposit back in full and additionally a repayment to the sum of three times the original deposit value.

The landlord deposit scheme do not apply to every landlord however and residential landlords, those that live within the same property as their tenants are exempt from the law although it is seen as best practice to still protect deposits with one of the approved schemes.

There are two types of schemes that are authorised by the government, labelled as custodial and insurance based.

Custodial schemes work by holding the tenants’ deposit in an independent bank account which pays out the deposit at the end of the tenancy to the respective parties. Everyone can use this scheme although it enforced upon overseas landlords unless they have a UK registered letting business. There is one custodial based scheme in the UK.

The other, insurance based scheme works similarly although the landlord or agent holds onto the deposit but instead pays an insurance fee. The insurance covers the risk of the landlord or agent keeping the deposit illegally, in the event of this happening the insurer must pay the tenant and then put the effort into recouping the deposit from the landlord. There are two authorised schemes in the UK which are insurance based.

As previously mentioned tenants are only assured the return of their deposit as long as they have met the terms of the tenancy agreement and there is no damage to the property. Typically, the landlord will inspect the property on the termination of the tenancy and deduct costs from the deposit to pay for materials and labour used to repair damage. If the tenant does not agree with the deductions they can use a dispute resolution service which will weigh the claims of either party and decide how much from the deposit will receive.

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