UK: The Tenancy Deposit Scheme

Last Updated: 29 May 2015
Article by Emma Humphreys and Chloe Benson

An update on the legislation

Under the Housing Act 2004, the Government introduced measures to protect rent deposits taken in connection with residential Assured Shorthold Tenancies ("ASTs"). These rules have applied since 6 April 2007, although there have been a number of amendments to the original legislation.

The scheme was designed to have two main purposes:

  1. to safeguard tenancy deposits paid in connection with ASTs; and
  2. to assist in resolving disputes arising between landlords and tenants in connection with such deposits.

There are two types of TDS: custodial and insurance-based.

Custodial Schemes

Under custodial schemes, the tenant pays a deposit to either the landlord or agent who pays the deposit into a "designated scheme account". The scheme safeguards the deposit by holding it until such time as both parties agree on the terms of release and in what proportion, or following the notification of the outcome from dispute resolution.

Where both parties agree, or where notification following dispute resolution is received, the deposit must be paid to either party within 10 days of notification. If no agreement is reached the scheme administrator will retain the deposit until either the tenant or landlord obtains a final court order specifying the proportion of the deposit to which each is entitled. The scheme administrator will then pay out in accordance with the court order within 10 days of receiving notification of the decision.

Where a scheme administrator returns a deposit to either tenant or landlord, they should do so with interest added at a rate specified by the government. Any interest additional to this can be retained by the scheme administrator and can be used to fund the administration of the scheme.

Insurance Based Schemes

Under insurance based schemes, a landlord retains the deposit and only transfers it into a scheme if there is a dispute with the tenant at the end of the tenancy. In those circumstances where there is a dispute, the deposit must be transferred to the scheme within 10 days of being directed. The scheme will then hold the deposit until the dispute is resolved (by agreement or court order). Only then will the administrator distribute the deposit (in the agreed amount) to the relevant party, with interest.

Where notification is received following dispute resolution, the scheme administrator is required to make payment within 10 days (irrespective of the sum paid to the scheme by the landlord or agent).

Where a landlord or agent fails to reimburse the scheme as directed following the outcome of dispute resolution, the landlord's/agent's membership of that scheme will be terminated. If the landlord fails to pay the deposit into the scheme, the deposit will be funded by the scheme - which will then look to the landlord for reimbursement. Unsurprisingly, schemes must establish and maintain adequate insurance coverage to enable them to make such payments. Schemes will require participating landlords to contribute towards this or charge administration fees.


All tenancy deposit schemes (both custodial and insurance based) have alternative dispute resolution mechanisms so that the parties can try to resolve disputes without resorting to the Court. ADR does not displace the Courts or prevent either party from taking the matter to Court but it provides the parties with another option to assist them in the resolution of their dispute. A tenant will have 3 months from the date on which he/she moves out of the property to raise a dispute with the relevant deposit scheme.

Housing Act 2004 – The Initial Position

Sections 212 – 215 of the 2004 Act, which came into force on 6 April 2007, imposed a number of obligations on landlords when an AST deposit was received. These included:

  • protecting the deposit with an authorised scheme within 14 days of receipt; and
  • serving the tenant with the "prescribed information" relating to the scheme within 14 days.

The 2004 Act imposed sanctions on landlords for non-compliance with these requirements, including:

  • being ordered to compensate the tenant for three times the amount of the deposit; and
  • being prevented from relying upon any notice served to terminate the AST under section 21 of the Housing Act 1988.

Changes under the Localism Act 2011

Following a number of Court decisions relating to the legislation, the Localism Act 2011 came into force on 6 April 2012. This made a number of changes to the 2004 Act, including:

  • increasing the period for the landlord to protect a deposit and serve the prescribed information on the tenant from 14 to 30 days;
  • allowing a tenant to apply to court for redress in respect of a breach of the deposit rules even where the tenancy has ended;
  • altering the penalty for failing to comply with the deposit rules so that the court has discretion to award between one and three times the amount of the deposit (even where the deposit has been registered but the compliance was late). The original position was that the Court was obliged to award three times the deposit; and
  • only permitting a landlord to serve a notice under section 21 of the Housing Act 1988 if the deposit has been registered and the prescribed information has been provided within 30 days of taking it.

The Superstrike problem

The case of Superstrike v Rodrigues 1 considered the scenario where a deposit had been received prior to 6 April 2007 but the AST became a statutory periodic tenancy in January 2008 (when the tenant was permitted to continue to occupy the property without completing a new AST agreement).

The deposit had not been protected when the tenancy started because there was no requirement at the time for the landlord to do so. The landlord continued to hold the deposit and did not protect it at any time prior to the issue of its claim for possession. The landlord served a section 21 notice requiring possession in June 2011.

The tenant successfully argued that because the landlord had not complied with section 215(1) of the 2004 Act (i.e. the deposit was not registered at the time when the notice was served), the section 21 notice was invalid. The Court of Appeal confirmed that where a fixed term AST continues as a statutory periodic tenancy after 6 April 2007, a new tenancy arises and the landlord had therefore been required to deal with the deposit in accordance with the Housing Act 2004.

A similar approach was taken in the case of Charalambous v Ng 2, where the AST was created (and the deposit was received) prior to 6 April 2007. In that case, the fixed term AST had become a statutory periodic tenancy in 2005, i.e. well before the tenancy deposit legislation came into force.


1. Superstrike Limited v Rodrigues (2013) EWCA Civ 669

2. Charalambous v Ng (2014) EWCA Civ 1604

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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Emma Humphreys
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