Zoopla’s deposit protection scheme guide will give you all the information you need to know if you are a tenant or a landlord.

Landlords must, by law, safeguard tenants' deposits with one of the government-backed tenancy protection schemes. Here is all you need to know about them.

What is a deposit?

A deposit is typically the equivalent of up to a months’ rent - possibly more. It is given to the landlord as protection against any breaches of the tenancy agreement. This could include damage to property, cleaning and unpaid bills.

The deposit is the tenant's property throughout the tenancy. It should be returned at the end of the tenancy, if the tenant has obeyed the agreement.

Only deposits in the form of money are protected. While landlords can accept items, such as a car, instead of money, they will not be protected by official deposit protection schemes.

An inventory - which documents the condition of the property and its contents at the start of a tenancy - is not required for a deposit protection scheme. However, it is considered good practice should there be a dispute at the end of a tenancy. It should be signed by both landlord and tenant. If an inventory is not produced, photographs of the property inside and out taken at the start of a tenancy is a good record. It is advisable for a tenant to check any circumstances in which the landlord can make a claim on the deposit.

How does a deposit protection scheme work?

In the past, a landlord was able to withhold an entire deposit at the end of a tenancy if they were in dispute with the tenant. So the Government introduced tenancy deposit protection in 2007 in a bid to regulate the system. 

As a result, a landlord must protect their tenant’s deposit using an approved deposit protection scheme if they have let the property on an Assured Shorthold Tenancy after April 6, 2007. 

These conditions do not apply in some cases, such as when a landlord lives in the property with the tenant, or if the tenant lives in a student hall of residence. However, it is still regarded good practice to ensure deposits are protected.

There are three government-backed deposit protection schemes operating in England and Wales:

The schemes aim to help safeguard deposits, provide an even and effective means of resolving disputes and promote greater understanding between landlord and tenant before the start of a tenancy.

If any other scheme is used then deposits are not protected in law. There are separate tenancy deposit protection schemes in Scotland and Northern Ireland.

Couple looking for a home to rent.

What types of deposit protection schemes are there?

All three tenancy deposit protection schemes offer custodial and insurance-based options.

Custodial 

The custodial option is where the landlord lodges the deposit with the scheme for the duration of the tenancy. The money is then released when both the landlord and tenant agree on the total sum to be returned at the end of the tenancy. The service is free to use because it is funded by interest made on the deposit.

Up until 1 April, 2016, only the Deposit Protection Service offered landlords the custodial style. But now, landlords who opt for it have a choice of schemes for the first time, after deposit-insurance players the Tenancy Deposit Scheme and MyDeposits were given the green light to offer both options too.

Landlords based overseas must use the custodial Deposit Protection Service scheme unless they employ a British-registered letting agent to manage their tenancy.

Insurance 

The insurance option is where the landlord holds the tenant's deposit throughout the tenancy and pays the scheme a fee to have it protected. The landlord manages the repayment at the end of the tenancy.

If the landlord does not pay the tenant the amount they are owed, then the insurer will pay the tenant and try to get the money back from the landlord.

What happens at the start of a tenancy?

Tenants can pay a holding deposit before they have signed a rental agreement, but landlords are not required to protect it until they become a tenant.

But once a tenant has signed a rental agreement, the holding deposit becomes something which must be protected with a scheme. Landlords (or their letting agent) must put the deposit in one of the deposit protection schemes within 30 days of receiving it and inform the tenant which scheme has been used. Landlords can choose which deposit protection scheme they would like to use. 

Landlords are still required to use a tenancy deposit scheme even if the deposit is paid by a third party, such as the tenant’s parent.

Within 30 days of receiving a deposit, landlords must provide tenants with:

  • Address of the rented property
  • Deposit paid
  • How the deposit is protected
  • Name and contact details of the deposit protection scheme and its dispute resolution service
  • Landlord or the letting agent’s name and contact details
  • Name and contact details of any third party that has paid the deposit
  • Why they would keep some or all of the deposit
  • How to apply to get the deposit back
  • What to do if a tenant cannot get hold of the landlord at the end of the tenancy
  • What to do if there is a dispute over the deposit

How long is the deposit protection scheme valid for?

A tenant’s deposit is protected for the duration of the tenancy with the same landlord. It will remain protected if the tenant decides to renew their tenancy.

If a tenant decides to leave the property before the end of the tenancy, they remain legally contracted until termination of the tenancy agreement is confirmed with the landlord. An adjudicator requires evidence that the tenancy has ended.

What happens if a landlord is suspected of not using a deposit protection scheme?

If a tenant believes their landlord has not used a deposit protection scheme when they should have done, they can apply to the local county court at any time during the tenancy. However, before a tenant takes this course of action, they should first inform the landlord to give them the opportunity to protect the deposit. Legal advice should be sought before applying to court.

The court has the power to order the landlord to repay the deposit to the tenant or put it into a custodial tenancy deposit protection scheme bank account within 14 days.

The court can also order a landlord to repay the tenant up to three times the original deposit as a fine within a fortnight.

Couple moving boxes.

What happens at the end of a tenancy?

Tenants can expect a decision as to how much of their deposit is going to be returned to them within 10 days from the end of the tenancy. The deposit is normally paid into the tenant's bank account. 

The government-backed schemes mean that tenants will get their deposit back based on the following conditions:

  • The terms of the tenancy agreement are met
  • There is no damage done to the property or contents
  • The rent and bills are paid

Solving a dispute

Each deposit protection scheme offers a dispute resolution service, known as Alternative Dispute Resolution. It can be used if the tenant and landlord are in disagreement about how much deposit should be returned at the end of a tenancy. It is a free service and is intended to resolve disagreements without the need to go to court. 

There may be a time limit on when a dispute must be registered by. Landlords and tenants are advised to contact the tenancy deposit protection scheme as soon as possible.

Cleaning charges and general wear and tear are among the more common reasons for deposit disputes. The House of Lords defines the phrase as "reasonable use of the premises by the tenant and the ordinary operation of natural forces". It is a legal principle too that tenants do not bear the full cost of having any part of a property, or any fixture or fitting put back to the condition it was at the start of the tenancy agreement. 

The dispute resolution service differs slightly, depending on which scheme the deposit it held in. However, the overarching principles remain the same.

The service can only be used if both landlord and tenant agree to use it and accept the ultimate decision made.

If a dispute arises, the landlord and tenant are both required to provide evidence to an impartial and qualified adjudicator within the required timescale. Adjudicators can be individuals hired under contract to the particular deposit protection scheme or employed directly by the scheme.

Both landlords and tenants should try to see their evidence from the independent third party - adjudicator - perspective. How will they view a case?

Types of evidence can include:

  • Tenancy agreement
  • Inventory
  • Photo or video evidence
  • Invoices, receipts and quotes
  • Bank statements
  • Utility bills and council tax
  • Witness statements

None of the parties are required to meet during the process, and the adjudicator will not visit the property in question. The adjudicator will decide the final outcome. 

The adjudicator will consider a number of factors, likely to include:

  • Length of tenancy
  • Number and age of tenants
  • Quality and condition of property and/or fixtures and fittings
  • Wear and tear of property and/or fixtures and fittings or damage

The onus is on the landlord to show that he has a justifiable claim to retain all or part of the deposit since the money remains the property of the tenant.

If the landlord or tenant doesn’t agree to use the dispute resolution service, court action may be required.

Landlords are responsible for making sure the deposit is kept safe with one of the schemes even if they use a letting agent to look after the deposit, which provides the tenant with peace of mind.

It is worth taking the time to explore the different schemes available and see which is best, considering the property, the rental agreement and the landlord's own situation to make the right choice.

Further help and advice can be sought from: 

  • the local Citizens Advice office
  • a solicitor 
  • Shelter in England or Wales

Some information contained herein may have changed since it was first published. Zoopla strongly advises you to seek current legal and/or financial advice from a qualified professional.

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