Everything You Need to Know About the Deposit Protection Scheme

Tenancy deposit protection was introduced to help safeguard a tenants’ deposit and ensure that they get their money back at the end of the tenancy, provided the tenant has met the terms of your tenancy agreement.

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There are two types of deposit protection schemes: insurance and custodial.

What is the insurance deposit protection scheme?

Insurance deposits see the landlord paying a fee to protect the deposit. They can then keep the money in their own bank or savings account and notify the insurers.  The landlord repays the tenant at the end of the tenancy, minus any damages (if any).

If the landlord fails to pay the tenant, the insurance policy will pay them and claim the money back from the landlord. This option will appeal to landlords with more expensive properties, large portfolios or long term contacts as it allows them to accrue interest on the deposit funds.

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What is the custodial deposit protection scheme?

The landlord will collect the deposit from the tenant and they will register the money with a government approved deposit protection scheme.There are three Deposit schemes available: Deposit Protection Service, MyDeposits and Tenancy Deposit Scheme.

The chosen scheme will then take custody of the money once the landlord has registered the deposit. They will only release the money at the end of the tenancy agreement when both parties have agreed on the amount and any tenancy dispute is resolved.

Why were deposit protection schemes introduced? 

The deposit protection scheme was introduced by the government to try and reduce the amount of disputes occurring between tenants and landlords, as they found that some deposits were withheld unfairly. Landlords need to place the tenants’ deposit in a tenancy deposit protection scheme within 30 days of them receiving the money and they are required to inform the tenants which protection scheme they are using.

Is it mandatory  for landlords to have deposit protection ? 

From 6th April 2007, it became a legal requirement to safeguard a tenants’ deposit with one of three government backed deposit protection schemes or by using an insurance policy. Failure to protect your tenant deposit could result in your tenant taking you to court and you could face fines between one and three times the deposit amount. You may also lose the ability to obtain a court order to regain possession of your property.

When can deposits be claimed back by the tenant? 

The tenant can claim their deposit back at the end of their tenancy. They can expect to get the full deposit back as long as they have paid all outstanding bills, stuck to the terms of their tenancy and there has been no damage to the building or contents.

The deposit protection scheme offers peace of mind for both landlords and tenants, knowing that the deposit is safely stored in a government scheme and that it will be kept safe until any disputes are sorted out.

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