Tenancy Deposit Protection has been introduced for a couple of reasons; it ensures good practice in deposit handling and assists with the resolution of disputes by having an Alternative Dispute Resolution. Tenancy Deposit Protection will apply to all Assured Short-hold Tenancies in England and Wales where a deposit is taken. After 6 April 2007, when signing a new tenancy agreement with tenants you will be able to choose between two types of deposit scheme.

 Option 1) Custodial Schemes- here the tenant pays the deposit to the landlord and then the landlord pays the deposit into the scheme. Within 14 days of receiving a deposit, you as the landlord must give your tenant(s) the prescribed information about the scheme being used.

At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided they will tell the scheme which returns the deposit divided in the way agreed by both parties.

If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide what is fair.

Option 2) Insurance- based Schemes- here the tenant pays the deposit to the landlord, the landlord then retains the deposit and pays a premium to the insurer (this is the key difference to the custodial scheme.) You as the landlord again have a responsibility to give your tenant prescribed information about the scheme being used and tenancy within 14 days of receiving a deposit.

At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit.

If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved. If for any reason you as the landlord fail to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Some may say these new arrangements are unfair to good landlords who are already acting responsibly by safeguarding deposits. However, these provisions need to be put in place to ensure the minority bad landlords do act responsibly.

Disputes will only go to the courts if the landlord and tenant do not agree to use the ADR service. In the custodial scheme, where a landlord or tenant does not co-operate in order to release the deposit, i.e. by not agreeing to release the full or part of the deposit; and not agreeing to resolve the dispute through ADR or court, ADR will be the default way in which to resolve a dispute. In the insurance-based scheme, where the landlord is contactable by the scheme but is refusing to cooperate with the scheme in terms of choosing ADR of the courts, it will be mandatory for the case to be referred to the scheme for resolution through its ADR scheme.

For more information please see the following links -

Tenancy Depost Scheme in Housing Act 2004

EMPO Tenancy Deposits Explained March 07

Tenancy Deposit Protection Overview