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Do not put your property investment at risk by failing to protect a tenant’s deposit

A number of landlords are jeopardising their property investments - probably their biggest assets - 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. 

However, 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.

It is estimated that hundreds of millions of pounds worth of deposits have not to have been placed in one of the three schemes in England and Wales. This is despite the risk of a penalty for the landlord, potentially running into thousands of pounds for not doing so. 

Only last week, a rogue landlord in the Warriston area of Edinburgh was fined £7,500 after he failed to protect tenants’ deposits in an approved third-party scheme. 

Gordon Maloney of Living Rent commented: “This case is an important victory for tenants and sets a clear precedent: landlords cannot simply pick and choose which laws apply to them.” 

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.

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    I have a long term tenant who pre-dates the DPS, what should I do?

    John

    Paul Barrett

    Even for the sake of a good tenant relationship sign up to mydeposits and give the tenant a DPC.
    I believe all deposits are now required to be protected.
    I believe if you are an NLA member you receive a discount on the mydeposits scheme.

     
  • icon

    I have a long term tenant who pre-dates the DPS, what should I do?

    John

  • icon
    • N P
    • 29 October 2019 11:21 AM

    The law states that a deposit doesn't have to be protected if it was paid before 6 April 2007 and either:
    the tenant never had a fixed term tenancy
    the fixed term ended before that date

    BUT you must protect or return the deposit first if you want to take steps to end the tenancy with a section 21 notice.

    IF the deposit was paid before this date but the fixed term ended after this date and you have not signed a new contract since, then the deposit should have been protected by 23rd June 2015.

    If the latter applies, then protect the deposit as soon as possible, although it will be late, from a courts point of view, it's better late than never.

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