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Tenancy deposit protection (TDP) explained

20 March 2020 / Landlord News

As of April 2007, new laws meant landlords needed to change the way they treated deposit money taken from a tenant. Tenancy deposit legislation was introduced to protect both the landlord and tenant; it acts as a safeguard should a tenant cause any damage to a property and prevents a rogue landlord from handling deposit money unfairly.   

Here, we list the need-to-know facts about tenancy deposit protection (TDP) and look at the alternatives for landlords. 

What is TDP legislation? 

If you’ve taken a deposit from a tenant, it must be protected using a government-backed tenancy deposit scheme if your property is rented on an assured shorthold tenancy that started after 6 April 2007. 

In England and Wales, this includes three schemes:

There are separate TDP schemes in Scotland and Northern Ireland.

If you don’t rent a property on an assured shorthold tenancy, you can accept valuable items (such as a car or watch) as a deposit instead, but these items won’t be protected by a scheme.

How do I register a deposit? 

You must place the deposit in a scheme within 30 days of receiving it and provide the tenant with the Deposit Protection certificate and Prescribed Information. If you don’t provide this information, you may lose the ability to regain possession of your property (under a Section 21 notice) and possibly face a fine of up to three times the value of the deposit. 

At the end of a tenancy, you need to return the deposit to the tenant so long as they have met the terms of the tenancy agreement, haven’t damaged the property and paid the rent and bills. This must be done within 10 days of agreeing how much money will be returned. If a dispute comes up, the deposit remains protected and the TDP scheme will resolve it using their free deposit resolution service (although less than 1% of tenancies result in a dispute).

What are the TDP options?

All three deposit schemes give two options for protecting a deposit: insured or custodial schemes. 

With the insurance scheme, you’ll pay a small joining fee, plus an individual fee to protect each deposit. This option means landlords can keep hold of the deposit in a bank account until the tenancy ends, accruing any interest. Once the tenancy finishes, you can deal directly with your tenant to hand the deposit back in full or make any deductions.

The custodial option is free to join and use. The scheme will hold the deposit safely in a secure bank account on behalf of yourself and your tenant. At the end of the tenancy, you will agree on how much will be returned with your tenant and authorise its return. 

It’s always best to try and come to an agreement about the return of a deposit, but if you can’t settle with a tenant, both options mean you’ll have access to a free dispute resolution service.

Zero Deposit

Zero Deposit offers an alternative to taking a standard tenancy deposit, providing tenants with added flexibility and choice. It also allows you to market your property to a larger group of applicants. 

With this service, your tenants purchase a Zero Deposit Guarantee that still provides you with the same cover as a 6-week tenancy deposit. The product reduces the upfront cost of renting for tenants, making your property even more attractive, helping to speed up the rental process and reducing void periods. 

Tenants are still fully accountable for looking after your property and making rental payments, with Zero Deposit only making a payment to you if there’s a fair claim at the end of a tenancy. Townends offers this option to our landlords, find out more here

Recording an inventory

If you choose to take a deposit or your tenant purchases a guarantee, it’s important to complete a professional and detailed inventory. This records the property’s condition and means you’re less likely to have to deal with a dispute at the end of the tenancy. 

Make sure the inventory includes photographic evidence and records even the smallest mark, this means you’ll only charge the tenant for any damage incurred during their tenancy.

Other options

Taking a deposit isn’t a legal requirement, but if you do take one from a tenant, you must protect it using one of the government-authorised TDP schemes. Alternatively, you can opt for a Zero Deposit Guarantee. However, there are a few other options open to landlords: 

Guarantors – asking for a guarantor can be effective irrespective of the credit status of the applicant, but this must be done properly to avoid invalidating the agreement

Rent in advance – as long as it’s a genuine rent payment (i.e. none is returnable) then this can reduce the risk of abandonment and non-payment

Local authority bonds – if the tenant qualifies some local authorities or charities offer bonds as an alternative to deposits

Not taking a deposit – landlords may choose to simply take a higher rent and accept more risk.

Taking care of everything…

If you’re thinking about contacting a professional letting agent to take care of tenancy deposit protection on your behalf, speak to your local Stirling Ackroyd branch to find out more about our expert landlord services today.

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