Tenancy Deposit Schemes ("TDS") have been devised
under the Housing Act 2004 to safeguard tenancy deposits paid in
connection with assured shorthold tenancies and to assist in the
resolution of disputes arising in connection with the refund of
As from 6 April 2007 any deposit taken under an assured
shorthold tenancy ("AST") must be safeguarded in a TDS.
Most tenancy agreements for self-contained residential property
entered into post 1997 are ASTs.
If a landlord fails to join a TDS and / or provide the relevant
information about the TDS to the tenant within 14 days of receipt
of the deposit, then the landlord may be prevented from recovering
possession of the property under the section 21 notice procedure.
The alternative methods of recovering possession are likely to be
much more expensive and time consuming. The landlord may also be
liable to a financial penalty of three times the amount of the
There are 2 types of Scheme:
A custodial TDS
A custodial TDS requires a landlord to pay its tenant's
deposit to a scheme administrator within 14 days of receipt from
The scheme administrator holds the deposit until the tenancy
comes to an end. At the end of the tenancy, the deposit is returned
by the scheme administrator to either the tenant or the landlord or
is split between them.
The landlord does not, therefore, retain possession of the
There is no provision allowing a custodial TDS to charge a fee
for administration but there is provision allowing the scheme
administrator to retain interest accruing on the deposit money. The
intention is therefore that the custodial scheme will be funded by
the accrued interest earned on deposits.
An insurance TDS
Under an insurance TDS, the landlord retains possession of the
deposit but owes various obligations to the scheme
The deposit is secured by paying a fee and an insurance premium
to the administrator. The administrator will then use the insurance
proceeds to pay the tenant should the landlord not repay the
Landlords will pay for insurance TDS through an administration
fee and contributions towards the scheme administrator's
Limited availability to non-UK resident
At the time of writing only the insurance TDS
withwww.mydeposits.co.ukis available to
landlords incorporated in the Channel Islands (in addition
to those incorporated in the UK). It is not available to landlords
incorporated in other jurisdictions. The custodial TDS is
available only to UK resident landlords and can be
accessed through: www.depositprotection.com .
The alternative insurance TDS is also available only to
UK resident landlords and can be accessed through: www.thedisputeserve.co.uk.
Even though not mandatory, it is good practice for landlords to
create an inventory for a property, including a schedule of
condition of fixtures and fittings, as it may be useful in
resolving disputes over the return of the deposit.
Disputes relating to deposits
A key feature of both types of TDS is alternative dispute
The aim of ADR is to provide both parties with a means of
resolving deposit disputed without having to go to court.
Both the custodial TDS and the insurance TDS are required to
offer ADR to tenants and landlords as an alternative to issuing
court proceedings, but both the tenant and the landlord retain the
right to go to court.
Alternatives to deposits
Use of a guarantor
Rental payment in advance (not to be confused with a
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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