You can’t just stuff a tenant’s deposit under the mattress and forget about it till they move out, you can’t treat it as a bonus and help yourself to a chunk of the cash either. You must register any deposits taken under an Assured Shorthold Tenancy agreement with one of four government approved schemes and you must tell the tenant, in writing, where and how the money is being safeguarded and what they can do if you don’t give it back.
The penalties for not doing this are quite severe, up to three times the value of the deposit. As the money is paid to the tenant, there’s every incentive for them to report you if you don’t protect the deposit.
Even if you register the deposit but forget to pass the Prescribed Information about where and how the deposit is protected on to the tenant within 30 days of receiving the money, you could still be fined.
If the deposit hasn’t been correctly protected, you can’t end the tenancy.
You have two choices to make when taking a deposit; you can hand it over to a custodial scheme where it will be kept until the tenant leaves, or you can register it with one of two insurance-backed schemes, which allow you to keep the money in your own bank account until the tenant leaves.
You can register the deposit with one of 4 schemes offered by 3 different organisations:
- Deposit Protection Service (free for custodial deposits; fee to protect insurance-protected deposits).
- Tenancy Deposit Scheme (free to join, pay to protect)
- My Deposits (pay to join, pay to protect)
It’s free to register the deposit if you surrender it to the Deposit Protection Service’s custodial scheme (www.depositprotection.com). If you want to safeguard the cash in your own bank account, you’ll need to pay to register it with one of 3 insurance-backed schemes, the cheapest of which is the Tenancy Deposit Scheme (www.tds.gb.com) which is free to join but charges £15 for each deposit of up to £500 or £24 for deposits of £5001 and more.
To protect the deposit, you’ll need the name, telephone number and forwarding address for EVERY tenant on the lease. They should all be sent details of the tenancy deposit scheme and you’ll also need to provide them with details of how to get the deposit back at the end of the tenancy and what might cause them to forfeit some or all of the money – usually this just means referring them to the relevant clause in the tenancy agreement. The tenancy agreement should also state the amount of deposit of where it is protected.
Remember that if you don’t protect the tenant’s deposit, you won’t be able to get a Court Order to evict a tenant, even if they’ve broken the terms of their lease, and you could be fined.
Some lettting agents will protect the deposit for you, for a fee, usually around £30. As it’s a bit of a faff to do yourself, you might think it money well spent, but remember that you’re still responsible for the deposit and for making sure that all the correct paperwork has been issued.
If the letting agent keeps the deposit themselves, you will be responsible for making sure it’s returned to the tenant when they leave, minus any legitimate deductions.
At the end of the tenancy, technically speaking it is then tenant’s responsibility to request the return of the deposit, but best practice is for landlords to return the deposit to the tenant as soon as possible and certainly within 30 days of receiving a request from the tenant. You should tell the tenant within this period if you plan to make any dedications.
If the tenant disagrees with any deductions, they have the right to complain to the deposit protection scheme, which will decide whether the deductions are fair. In the meantime, you’ll have to surrender the amount of the deposit in dispute to the protection scheme.
The biggest disputes between landlords and tenants are over wear and tear and cleanliness.
Read about wear and tear and how to decide how much to deduct from a tenant’s deposit.
For cleaning tips, click here.
Read about your other legal obligations here.
Remember that if you re-issue your tenant with a new fixed-term tenancy agreement, you must re-protect their deposit. If they switch to a periodic tenancy, you should inform the protection scheme but you won’t have to pay to re-protect the deposit.