Tenancy Deposits and Tenancy Deposit Schemes

David Lawrenson of www.LettingFocus.com prefers tenancy deposit schemes where a landlord does not have to hand over the cash.

Since April 2007, landlords letting property in England and Wales and who take a deposit on an assured shorthold tenancy (AST) must protect it in a tenancy deposit scheme, tell the tenants which scheme it is in and give them the necessary “proscribed information”.

All this must be done within 30 days of taking the deposit.

In England and Wales you can either choose a “free to use scheme” in which you have to hand the deposit money over to an administrator or you can opt for one of two “insurance based schemes” – where you pay a one off fee, which is currently £30 for the MyDeposits scheme.

We much prefer the insurance based schemes like MyDeposits – because in these the landlord gets to hold onto the deposit (unless there is a dispute, in which case the disputed amount must be paid over to the scheme administrators pending resolution).  And, if you hold the cash, the insurance based schemes also allow the landlord to potentially earn interest on the deposit monies too.

Scheme Rules

Of course there are rules. In insurance based schemes, like MyDeposits, the landlord does not need a ring fenced client account, but landlord members must:

1) keep the money in a UK bank account as a minimum

2) if they are a member of an approved or trade body, hold the deposit is accordance with their rules on accounting requirements, subject to minimum above

3) own the property (jointly is fine) for the deposit they wish to register

4) be named as the landlord on the assured shorthold tenancy agreement and ensure the TA matches the deposit certificate. (For agents and corporate landlords, different rules apply and a ring fenced client account is a must).

The free (custodial scheme) operates quite differently – it pays for itself partly from interest on the deposits it takes in from landlords.

Do the Maths

Landlords should do the maths!

Even at just a 3% interest rate, if the deposit is a fairly typical £1,000, then you only need a years worth of interest for the insurance based schemes to earn back  the one off £30 fee and start to look like the better deal.

Landlords opting for the insurance based schemes should ideally make it clear on the assured shorthold tenancy agreement that they, the landlord, will keep any interest earned on the deposit monies.

But what I really like about the insurance based schemes is that they are fairly easy to use. At the end of the tenancy, providing there is no dispute over the deposit, then you just hand the agreed deposit back to the tenant (in full or with any deductions as agreed with the tenant) and simply go online to the scheme administrators’ site and tick a box to “unprotect” that deposit.

There is no fiddly need to request the funds back from the scheme administrator.

It seems the simpler way of doing things to me.

(In Scotland things are different – here there is no insurance based tenancy deposit scheme. Only custodial schemes where landlords have to hand over the deposit at the outset are available).

Housing Benefit Tenants – A Different Ball Game

Of course, tenants who are on LHA / Housing Benefit will often not have deposits.  Sometimes a local authority will offer to cover the deposit instead – but they will always hold onto the money, so no possibility of landlords earning interest on it here!

And claiming against these local authority schemes can be hard work and take time – another reason why many landlords, will avoid this end of the tenant market if they have a choice.

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