Tenancy Deposits – to protect or not?

As most landlords are aware, since the 6th April 2007 all security deposits taken by landlords must be protected in one of the approved Government Tenancy Deposit Schemes [TDP]. Landlords have always had a choice of schemes to which they can safeguard each deposit that must then be followed up with the serving of a statutory notice [Section 123], which must be served upon the Tenant no later than 30 days of receiving the deposit.

The question arises though; must all deposits be in monetary form and must all deposits be protected? The answer is surprisingly no, since the latest legislation amendments of April 2015, landlords can now accept actual valuable items instead of money. Examples include a car, a piece of furniture or even jewellery, such physical assets do not need to be protected by any such scheme therefore giving an “opt out” option to a number of landlords who find the deposit schemes ineffective and time consuming.

Other types of deposits that do not come under the TDP legislation are deposits from lodgers, certain types of live-in landlords and company lets. As the landlords are not obliged to take deposits in these circumstances some get to avoid the rules altogether but landlords do need to be mindful of the fact that the TPD legislation only applies to Assured Shorthold Tenancies [AST].

The schemes are free and not over complex but still landlords are apprehensive to get involved as in some schemes require the full amount of the deposit must be protected where as other schemes which are insurance based, require the landlord to pay an ongoing insurance premium. Furthermore, at the end of the tenancy the landlord has the option of returning the full amount of the deposit or part sum depending on whether any dispute arises. If dispute does arise then usually an arbitrator will decide upon the validity of the issues and pays out accordingly.

To summarise, since the introduction of the TDP Schemes in 2007 there has been much confusion and a genuine lack of knowledge in regard to the legal requirements which has left many landlords in trouble. The rules are very stringent so if landlords do not want to get into strife, the following condensed summary is a useful breakdown of the current position that landlords of AST’s find themselves in since the latest amendments of April 2015;

• Deposits do not have to take monetary form, physical items can be used as a deposit that do not come under the TDP and therefore do not need to be protected;

• Once a deposit is received it must be deposited within 30 days and notice of the prescribed information [s123 Notice] must be served on the tenants;

• Proof of service is invaluable as without it any attempt of the Eviction via the Section 21 route will undoubtedly fail;

• Detailed inventory checks and reports must be carried out by independent, authorised third parties as without such documentation a landlord will not succeed in any claim for damage against a deposit;

Failure to comply with any of the rules will not only prohibit a landlord from serving a section 21 and regaining possession but will also result in a hefty fine that could be three times as much as the deposit.