Rent deposits & residential tenancies

Rent deposit rules are intended to give greater security to tenants and help facilitate any disputes arising in connection with deposits. Any sum taken by a landlord as security for the performance of tenant’s obligations (regardless of the label it is given) will be subject to the provisions. Basically deposits will have to be put into one of two schemes; the landlord has the choice as to which scheme to use.

The two schemes are the custodial scheme or the insurance based scheme. Landlords have 14 days from receipt of the deposit to place it into such a scheme. If a landlord fails to do so then the tenant can apply to court for the deposit to be repaid to the tenant or paid into a scheme. Failure by the landlord to arrange for the deposit to be paid into a scheme prior to the court hearing will result in the court ordering the landlord to pay three times the deposit amount to the tenant. Furthermore, failure to place the deposit in such a scheme will stop the landlord being able to regain possession of the property under the “no fault/notice only” ground of the Housing Act 1988. It is therefore essential that landlords comply with these provisions.

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Custodial scheme

The landlord pays the amount of deposit into the scheme.
Within 14 days of receiving a deposit, the landlord must give the tenant the prescribed information about the scheme being used. This is a prescribed printed form which must be used.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme which returns the deposit, divided in the way agreed by both parties.
If there is a dispute, the scheme will hold the amount until the dispute resolution service or courts decide the dispute.
The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be paid on the amount refunded. The amount of interest has yet to be set.

Insurance based schemes

The landlord retains the deposit and pays a premium to the insurer - the key difference to the custodial scheme.
Within 14 days of receiving a deposit, the landlord must give the tenant prescribed information about the scheme being used and the tenancy. This is a prescribed form.
At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, the landlord returns all or some of the deposit.
If there is a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the dispute is resolved.
If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Both schemes will have to offer alternative dispute resolution as a method of resolving any disagreements relating to amount of deposit to be kept/returned, although its use will not be compulsory.

The rules should reduce the problems with repayments of deposits for both landlords and tenants.

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