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Deposit protection schemes for tenants explained by Confused.com

Someone handing over their depositRights for renters – a Confused.com guide to deposit protection schemes

If you're renting your home, you'll be pleased to know that there are now greater protections in place for your deposit than there once were. The arrangements can be confusing for those that haven't rented before, so we explain all in our Guide to Deposit Protection Schemes.

Rent deposits

A deposit is a set amount of money, often equal to one month’s rent, that a tenant pays at the beginning of the rental period. When the tenant leaves, it should be returned minus any deductions for damage caused to the property. The deposit acts as protection for landlords so they don’t have to use their own money to fix unreasonable damage caused by tenants (e.g. trashed furniture, bathrooms or kitchens).  

A deposit used to go straight into the landlord’s pocket for safe keeping, to be returned to the tenant – less any deduction for repair work – at the end of the tenancy. However, this system didn’t always work smoothly; with many instances of unscrupulous landlords holding back hundreds of pounds for spurious repairs leading to small claims court action.

Hence the creation of Deposit Protection Schemes, designed to safeguard the rightful return of tenants’ money.

Deposit protection schemes

Since 6th April 2007, all deposits for new assured shorthold tenancies in England and Wales have to be protected by a government-approved deposit protection schemes (unless the annual rent is £25,000 or over).

Almost all rentals begun after 1997 fall into the assured shorthold category. Major exceptions include university halls of residence, and tenancies where accommodation is shared with the landlord.

There are two types of deposit protection scheme: insurance based and custodial.

  • Insurance-based schemes are where the landlord holds onto the deposit and pays a fee to the scheme. The fee ensures that the deposit is always returned to the tenant (minus any legitimate deductions), even if the landlord runs off to Las Vegas with it.
  • In custodial schemes, the landlord hands the deposit over to the scheme. Interest earned on the deposit is used to fund the scheme, and any excess interest is paid back to the landlord or tenant when the deposit is returned.

How does it work?

The landlord has fourteen days from receipt of the deposit to protect it in one of the recognised schemes. Within the two-week time limit, the landlord must also let tenants know:

  • Their contact details
  • Contact details of the relevant deposit protection scheme
  • What the deposit is for
  • How to get the deposit back
  • What will happen in the event of a dispute

At the beginning of the tenancy, the schemes expect a clear agreement to be reached about the condition of the property. This is designed to prevent disputes when the deposit is returned; so make sure that any peeling wallpaper is acknowledged, and that property contents are protected by home insurance.

If things go wrong

The deposit must be returned within ten days of the tenants moving out. Deductions are only permitted to cover damage to the property, or non-payment of rent; for example, the landlord can’t take money off the deposit to fund a swish new bathroom suite, or to remedy normal wear and tear.

If there is a disagreement about the amount of deposit to be returned, all schemes have a free dispute resolution service. Whilst this process is completed, landlords in an insurance-based scheme must hand over the deposit to the scheme.

However, the Deposit Protection Service has revealed that 62%* of landlords are disobeying deposit legislation and not using any of the relevant schemes. To avoid such landlords, make sure you get details of how your deposit will be protected before the tenancy begins.

If you do find yourself renting from a dodgy landlord who’s not fulfilling statutory obligations, you can report them to the county court who can award you compensation of three times the deposit amount. The court will also order the landlord to either refund the deposit, or place it in one of the schemes.

If you are having trouble at the end of your tenancy, follow the link for a brief summary of how to claim your deposit back.

Other ways to protect yourself as a tenant

  • Confused.com can help you find the right contents insurance for your belongings. Contents insurance protects your possessions from fire or theft, and accidental damage cover (which will replace items that are unintentionally broken) is also available.
  • A full inventory of the rental property isn’t mandatory, but it can be helpful in preventing potential problems when retrieving your deposit. Taking photographs of the property and its contents is also a good idea.
  • Make note of utility meter readings when you move in and leave. If gas and electricity aren’t included in your rent, you may wish to consider switching utility providers to see if you can save money on energy bills.

*According to research by the Deposit Protection Service in June 2008, 62% of landlords have not protected their tenant’s deposit in any deposit protection scheme.

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