A number of landlords putting their property investments – probably their biggest assets – at risk by failing to comply with basic legislation, such as placing their tenants’ deposits in a government-backed tenancy deposit scheme.

When renting out a property, most landlords choose to take a deposit from the tenant prior to the tenancy starting. The deposit gives a level of protection to landlords and means that should the tenant breach the terms of the tenancy agreement, such as causing damage or not paying rent, the landlord can then make appropriate deductions from the deposit.

Deposits taken on assured shorthold tenancies in England and Wales by landlords or letting agents must be protected within 30 days in any one of three government-backed insurance based or custodial deposit protection schemes operated by MyDeposits, Deposit Protection Service (DPS) and the Tenancy Deposit Scheme (TDS). 

Insured scheme 

The insurance product enables landlords or agents to retain the deposit during the tenancy but in return pay a protection fee to the scheme. 

Custodial scheme

The custodial scheme allows landlords or agents to hand over the deposit for protection during the tenancy, with no fees attached. The scheme is funded entirely from the interest earned from the deposit pool. 

There are separate tenancy deposit protection schemes in Scotland and Northern Ireland.

The three appointed scheme administrators in Scotland are Letting Protection Service Scotland, Safedeposits Scotland and MyDeposits Scotland. 

In Northern Ireland, the schemes are Deposit Scheme Northern Ireland, MyDeposits Northern Ireland and Letting Protection Service NI. 

But although it has been mandatory to hold a tenancy deposit in a tenancy deposit scheme since 2007, many landlords are running the risk of a heavy fine for not placing money into a government authorised scheme, according to Danielle Cullen, managing director at StudentTenant.com.

“A small proportion of landlords did not put student deposits into government protected schemes,” said Cullen.

“Some landlords were holding tenants deposits in private bank accounts; breaking a law introduced in April 2007,” he added. 

A report by the Centre of Economics Business Research last year found that a total of £514m worth of deposits was believed not to have been placed in one of the three schemes in England and Wales. 

It comes despite the risk of a penalty for the landlord, potentially running into thousands of pounds for not doing so. 

“While deposit protection schemes protect tenants, there is little or no policing to ensure landlords and agents are compliant,” said Jane Morris, managing director of online letting agents PropertyLetByUs.com. 

Be warned: Tenants can apply to a local county court if they think their landlord has not used a deposit protection scheme when they should have, and if found guilty, the court can order the landlord to pay up to three times the deposit within 14 days of making the order. 

Landlords could also face penalties if their agent failed to comply with the tenancy deposit regulation.