The Tenants Deposit Scheme came into effect from the 6 April 2007. The aim of the legislation is to ensure that a tenant paying a deposit, and who is entitled to get all or part of it back at the end of the tenancy, does so.
From 6th April 2007 all deposits taken by landlords must be safeguarded by one of three Government approved schemes. Landlords and Agents can choose which scheme they wish to use and must safeguard each deposit and inform the tenant which scheme has been used within 14 days of receiving the deposit. The Government has awarded contracts to three companies to run its tenancy deposit schemes.
At Lineas Estates we have researched the schemes and have decided to opt for the Insurance-based scheme awarded by the Government to a partnership formed by the NLA and Hamilton Fraser Insurance after successful completion of an exhaustive procurement process.
The insurance-based tenancy deposit scheme is a membership scheme that allows landlords through us, as your agent, to continue to hold deposits they take from a tenant during the period of tenancy agreement.
The landlord will be required to pay a fee to protect any deposits taken from a tenant. If there is a dispute over the return of the deposit at the end of the tenancy, the scheme, supported by an insurance policy, will ensure that the amount to which the tenant is entitled is returned. As necessary, the scheme insurers will recover the disputed amount from the landlord.
The scheme is also required to provide deposit dispute assistance which will be provided free of charge to all parties.
If a deposit is not protected, the landlord will be breaking the law. They will be unable to regain possession of the property using notice-only grounds for possession under Section 21 of the Housing Act 1988.
The scheme will operate as follows:
The tenant pays the deposit to the landlord:
The landlord retains the deposit and pays a premium to the insurer.
Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information (to be set out in secondary legislation) about the scheme being used;
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 the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.
Example: a tenant pays a deposit of £1000. At the end of the tenancy, the landlord says he wishes to keep £200 to pay for replacing damaged furniture. The remaining £800 will be returned to the tenant.
The tenant disagrees, claiming the furniture was damaged when they moved in. Both agree to go to ADR, so the disputed £200 will be transferred to the scheme administrator until the dispute is settled.
In each scheme, the deposit must be returned within 10 days of the landlord and tenant agreeing how the deposit should be divided, or within 10 days following notification of an ADR/court decision.
The cost for the insurance and our administration fee will be £50 for each tenancy agreement. However, if the tenant remains in the property after the initial term there is no additional cost until such time as a new tenant moves into the property. We have at Lineas Estates taken on the cost of registration for the scheme and the annual subscription fee as part of our continuing service to our landlords, in addition to administrating the scheme for each landlord.