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From April 2016, landlords in England and Wales will be required to choose between one of two new government-backed Tenancy Deposit Schemes (TDS) for all assured shorthold tenancy agreements. The Dispute Protection Service (DPS) will run the custodial scheme and MyDeposits will be responsible for the insurance scheme.

How does the custodial scheme work?

– Tenancy deposit is paid by tenant to landlord
– Landlord pays deposit into the free Deposit Protection Service (DPS) within 30 days of receipt
– DPS provides confirmation of receipt and details about the scheme to both landlord and tenant. Landlord has statutory obligation to pass on prescribed information (PI) to tenant
– Upon tenancy termination, landlord and tenant agree to repayment of deposit, inform DPS administrators and are repaid their fair share within 10 days
– If the repayment is in dispute, DPS will repay any undisputed amount plus interest to the relevant party, but hold the disputed portion until the Alternative Dispute Resolution (ADR) service or the courts decide upon the fairest resolution.

How does the insurance scheme work?

– Landlord pays for insurance to protect against dispute / non-return of deposit
– Tenancy deposit is paid by tenant to landlord
– Landlord retains deposit, notifies scheme and issues PI to tenant
– Upon tenancy termination, landlord and tenant agree what should happen to the deposit. If the tenant decides to complain to the administrators the landlord will need to lodge the disputed amount with administrators within a set time scale
– If in dispute, the deposit is repaid to the landlord and tenant in accordance with terms and conditions of the agreement, dispute resolution decision, or court order
– If the landlord fails to lodge the disputed amount with administrators, the insurance ensures recovery of monies from landlord so that fair distribution to tenants can take place

What happens if landlords do not comply?

Failure to comply with the rules of the chosen TDS could mean that:

– May not use ‘notice only’ under Section 21 of the Housing Act 1988 to regain possession of the property if the deposit has not been safeguarded under an appropriate scheme and the prescribed information given to the tenant within 30 days of receiving the deposit.

– May apply for a court order requiring that deposit be safeguarded and/or PI given. Courts can then order landlords to repay deposits and additional compensatory monies or instruct landlords to pay deposits into the custodial scheme administrator as appropriate.