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• To ensure good practice in deposit handling, so that when a tenant pays a deposit, and is entitled to get it back, they can be assured that this will happen.

• To assist with the resolution of disputes by having an Alternative Dispute Resolution service (ADR). It will also encourage tenants and landlords to have in place, from the outset, clear agreement on the condition of the property through best practice, such as the use of inventories, and agreement on the condition of the property.

• The Deposit Protection Service (The DPS) - the only custodial deposit protection scheme – is free to use and open to all Landlords and Letting Agents. The service is funded entirely from the interest earned from deposits held. Landlords and Letting Agents will be able to register and make transactions online. Paper forms will also be available should internet access be an issue. The scheme will be supported by a dedicated call centre and an independent dispute resolution service. For more information, visit www.depositprotection.com or call 0870 707 1 707

• Tenancy Deposit Solutions Ltd (TDSL) is a partnership between the National Landlords Association and Hamilton Fraser Insurance. From the 1st April 2008 They will be trading as mydeposits. This insurance-based tenancy deposit protection scheme enables landlords, either directly or through agents, to hold deposits. You pay an annual membership fee and pay for each deeposit you register on a "pay as you go" basis. Letting agents can also join the scheme. For more information, visit www.mydeposits.co.uk

• The Tenancy Deposit Scheme (TDS) is an insurance-backed deposit protection and dispute resolution scheme run by The Dispute Service that builds on a scheme established in 2003 to provide dispute resolution and complaints handling for the lettings industry. The new scheme enables letting agents and landlords to hold deposits. For more information, visit www.tds.gb.com or call 0845 226 7837.

Leaflets and posters for tenants, landlords and letting agents are available from the DirectGov website.

• The tenant pays the deposit to the landlord;
• 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 (to be set out in secondary legislation) about the scheme being used and the tenancy;
• 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.

Example: A tenant pays a deposit of £1000. At the end of the tenancy, the landlord says he wishes to keep £200 to pay for replacing damaged furniture. The remaining £800 will be returned to the tenant.

The tenant disagrees, claiming the furniture was damaged when they moved in. Both agree to go to Alternative Dispute Resolution (ADR), so the disputed £200 will be transferred to the scheme administrator until the dispute is settled.

In each scheme, the deposit must be returned within ten days of the landlord and tenant agreeing how the deposit should be divided, or within ten days following notification of an ADR/court decision

The Tenancy Deposit Protection (TDP) means that as from April 2007 deposits will have to be placed in the authorised Tenant Deposit Scheme- Tenant Deposit Protection. These will either be in "custodial" or "insurance" schemes which will be run by independent third providers. These schemes will be able to help resolve disputes. Landlords who take deposits will have to join a scheme. If they don't they risk having to pay a penalty of three times the deposit to the tenant.

In the Custodial scheme landlords will pay deposits into an account where it will stay until the tenancy ends, when either party can apply to have it returned. Once the landlord and tenant agree on how it should be split the scheme adminitrator pays out.

The insurance scheme is more complex in that the deposit will be kept by the landlord on the basis that when the tenancy ends, the amount agreed between landlord and tenant will be paid out to the tenant.

The insurance only comes into effect if at the end the tenancy the landlord doesn't pay back part or all of the deposit. If this happens, the tenant can ask the administrator to step in and the landlord will have to pay the amount in dispute into an account until the dispute is settled. The insurance will pay out if the landlord fails to pay the deposit into the account.

N.B. This information should not be relied on for accuracy and is presented here without the responsibility of jml Property Service and the website it is being displayed at. ©jml property Services 11-05

The following information is from http://www.communities.gov.uk/ and is © Crown Copyright 1995 - jml Property Services hold a Core Licence C02W00008738

General Note: Reference below to "landlord" should also be taken to include any other person that takes the deposit on the landlord's behalf i.e. a letting agent.

Q.1 Why should the Government protect tenants' deposits?

A. So that, when a tenant pays a deposit, and he or she is entitled to get all or part of it back, the tenant can be assured that this will happen.

Q.2 Aren't these provisions unfair on good landlords?

A. No. Most landlords deal fairly with tenancy deposits and are already acting responsibly by safeguarding deposits. However, these provisions need to be put into place to ensure the minority of bad landlords to act responsibly by safeguarding tenancy deposits. TDP puts into place a simple process for all landlords to ensure tenancy deposits are safeguarded. This is in the interests of both landlords and tenants.

Q.3 What sort of tenancies will deposit protection apply to?

A. All deposits taken by landlords in relation to assured shorthold tenancies ("AST") - the most common form of new tenancy - in England and Wales.

Q.4 What is the average deposit for an assured shorthold tenancy in England?

A. The most recent Survey of English Housing (05/06) found that the average deposit for an AST in England is £695.

Q.5 How will deposit protection work in practice?

A. There will be two types of scheme: a custodial scheme and one or more insurance - based schemes. The landlord - not the tenant - will have the option to choose whether to safeguard the deposit in the custodial or insurance-based scheme. A landlord will have 14 days to safeguard a deposit from the day he receives it. The landlord will have to provide the tenant prescribed information about the scheme safeguarding the deposit within these 14 days. To avoid disputes having to go to the courts, both schemes will be supported by an alternative dispute resolution (ADR) service - although the use of this will not be compulsory.

Q.6 How can tenants find out if their deposit is protected?

A. Within 14 days of receiving a deposit, landlords will have to provide tenants will details of which scheme is protecting the deposit. The scheme will be able to confirm if the deposit is protected. Details of the scheme administrators, and how to contact them, will be available once the contracts have been awarded, later in this year.

Q.7 When will the schemes come into effect?

A. Tenancy Deposit Protection (TDP) will start on 6 April 2007.

Schemes:

Q.8 Who will be running the schemes?

A. A competitive tendering exercise, under European Union procurement rules, is underway to select suppliers to run the schemes.

Q.9 What stage is the procurement exercise at?

A. Detailed negotiations with short-listed suppliers have recently been completed. The Government expects to be in a position to award contracts for a custodial scheme, and one or more insurance-based schemes, later this year.

Custodial Scheme

Q.10 How will the custodial scheme work?

A. The tenant will pay the deposit to the landlord as now. But - and here's the difference with the insurance-based scheme - the landlord will then pay the deposit into the custodial scheme. At the end of the tenancy, if the landlord and tenant agree how the deposit should be allocated, they will tell the scheme, which will pay out the money as agreed.

Q.11 What happens if the landlord or tenant cannot contact the other party to obtain agreement or where one party is being un-cooperative?

A. A 'single claim' can be submitted in these circumstances. Where a landlord cannot contact the tenant, he may submit a single claim indicating the reason for the claim, ie due to rent arrears or damage, providing evidence. Where a tenant cannot contact the landlord and makes a single claim, no other reason is required, as the deposit is the tenant's money. Where a landlord or tenant is contactable but one party refuses to co-operate in order to release the deposit, ie by agreeing deposit release or agreeing to resolve any dispute via ADR or court, a single claim can be made. Refer to Q.22 for what happens in the event of a dispute.

Q.12 Will landlords have to pay to transfer the deposit to the custodial scheme?

A. No. The custodial scheme will be free to use by landlords and tenants.

Q.13 How will the custodial scheme be paid for?

A. Deposits held in the custodial scheme will earn interest which will go to the contractor to pay for the running of the scheme. The remainder will be used to pay interest to the tenant/landlord. Where the deposit, or part of it, is divided between the landlord and tenant the interest will be allocated pro-rata.

Q.14 Will the addition of interest on the deposit affect a tenant's entitlement to housing benefit?

A. Whilst the deposit is being held under the custodial scheme, the tenant is unable to use the deposit and any interest accrued. As a result during the period of the tenancy the interest that accrues will be disregarded for the purposes of housing benefit. However, at the end of the tenancy the position may change. When the deposit and any interest is returned to a housing benefit claimant, provided that a claimant's capital remains under £6K then the capital will continue to be disregarded. If the deposit and the interest received raises the claimant's capital to over £16K then benefit will cease to be paid. In practice, however, since it is likely that the deposit will be transferred to a new tenancy the returned deposit plus any accrued interest may only have a minimal, if any, effect on entitlement to benefit. Insurance-based Scheme

Q.15 How will an insurance-based scheme work?

A. The tenant will pay the deposit to the landlord as now. The landlord will retain the deposit and participate in insurance arrangements which will assure the return of the deposit (or part of it) to the tenant when he or she is entitled to it. The precise nature of these arrangements will be determined by the outcome of the current tender process. Refer to Q.23 for what happens in the event of a dispute.

Q.16 Will a landlord pay for the deposit to be covered by an insurance-based scheme?

A. Yes. Landlords will pay a fee to belong to an insurance-based scheme. This will safeguard the deposit, should it be misappropriated.

Q.17 How much will the fee be?

A. The scheme administrator will decide on these arrangements.

Q.18 Will the proposed insurance-based scheme be open only to landlords who are members of a trade body or professional organisation?

A. No. The use of any scheme will not be dependent on membership of any trade body or professional organisation

Disputes

Q.22 What happens when there is a dispute over the return of the deposit?

A. Each scheme will contain an alternative dispute resolution (ADR) service. when a dispute occurs, and if landlord and tenant both agree to use the ADR service, they will also have agreed to be bound by its decision with no recourse to the courts. Disputes will only go to the courts if the landlord and tenant do not agree to use the ADR service. In the custodial scheme, where a landlord or tenant does not co-operate in order to release the deposit, ie by not agreeing to the release of full or part of the deposit; and not agreeing to resolve the dispute through ADR or court, ADR will be the default way in which to resolve a dispute. In the Insurance-based scheme, where the landlord is contactable by the scheme but is refusing to co-operate with the scheme in terms of choosing ADR or the courts, it will be mandatory for the case to be referred to the scheme for resolution through its ADR service.

Q.23 Will there be a charge for the use of ADR?

A. No, ADR will be free of charge for landlords and tenants.

Q.24 In the event of a dispute in the insurance-based scheme, what happens to the deposit?

A. If there is a dispute and your deposit is safeguarded by an insurance-based scheme, your landlord will not be able to keep hold of the amount in dispute until the dispute is settled. Instead, the landlord will be required to transfer to the scheme administrator the amount of the deposit that is in dispute. The scheme administrator will divide the disputed amount in accordance with the ADR service's, or court's, decision. For example, say that a tenant has paid £1000 as a deposit. At the end of the tenancy the landlord states that he wishes to retain £200 to pay for replacing damaged furniture, but the tenant disagrees claiming the property was already in that condition when he or she moved in. If the landlord only wishes to retain £200, the remainder of the deposit (£800) has therefore been agreed to belong to the tenant and should be returned to him/her. The disputed £200 will then be transferred to the scheme administrator until the dispute is settled.

Q.25 What happens if the landlord fails to transfer the disputed amount into the insurance-based scheme?

A. The scheme itself will pay the amount due to the tenant as a result of the ADR service's or court's decision. The scheme will then recover the money from the landlord.

Q.26 In the event of a dispute in the custodial scheme, what happens to the deposit?

A. The deposit will of course be held in the custodial scheme already. If the landlord and tenant cannot agree how the deposit should be divided, the disputed amount will remain in the scheme. The scheme administrator will divide the disputed amount as a result of the ADR service's, or court's, decision. .

Treatment of Deposits/Existing Deposit Schemes

Treatment of Deposits

Q.27 When must deposits be paid back?

A. When the landlord and tenant agree how the deposit should be returned, in full or in part, it must be paid back within 10 days. In the custodial scheme: within 10 days of the scheme being notified of agreement between the landlord and tenant or notified of an ADR/court decision. In the insurance-based scheme: within 10 days of the tenant requesting that the landlord return his deposit or, where there is a dispute, within 10 days of the scheme being notified of the ADR service's, or court's, decision.

Q.28 Can't it be paid back before then - ie on the last day of the tenancy?

A. Yes. 10 days is the maximum. In practice, DCLG would like to see deposits returned more quickly and will be working with potential scheme administrators to see how this can best be achieved. Many landlords currently pay the deposit back on the last day of the tenancy. In the insurance-based scheme, if the landlord and tenant agree on the amount to be returned, the deposit can be returned on the last day of the tenancy.

Q.29 What happens if a deposit has not been protected?

A. Currently, a landlord can obtain an order for possession of an AST at any point after the first six months of the tenancy providing any fixed term has expired and the landlord gives the tenant at least two months' written notice (Under Section 21 of the Housing Act 1988). This is known as 'notice-only'. However, under TDP, the landlord is unable to regain possession of the property using the usual 'notice only grounds', if the deposit has not been safeguarded within 14 days of the landlord receiving it. Tenants can also apply for a court order requiring the deposit to be safeguarded or the prescribed information to be given to him about the scheme in which the deposit is safeguarded. Where the court believes that the landlord has failed to comply with these requirements, or the deposit is not being held in accordance with an authorised scheme, the court must either order the landlord within 14 days of the making of the order to repay the deposit; or order the landlord to pay the deposit to the custodial scheme administrator. The court must also order the landlord to pay to the tenant a fine of three times the deposit amount within 14 days of the making of the order.

Q.30 What if a tenant moves out of their home before realising that their deposit hasn't been protected?

A. The tenant will need to apply for a court order and the court will order the landlord to repay the deposit amount to the tenant. In order to avoid this situation, tenants should make sure that their landlord has given them the prescribed information relating to the scheme that is safeguarding their deposit, and check that the deposit is safeguarded, within 14 days of paying the deposit.

Q.31 How will this affect deposits paid for ASTs which start before 6 April 2007?

A. The legislation will only apply to new deposits paid for ASTs entered into on or after 6 April 2007. Any deposit paid before this date will not need to be safeguarded by a tenancy deposit scheme. What happens if the tenant renews their contract after 6 April 2007? If the tenant decides to remain in their existing rented property beyond the initial fixed term of 6 months, how the deposit is treated will depend on how the tenancy is continued: Periodic tenancy - ie the tenancy continues with no new agreement - TDP will not apply, as no new AST will have been created. Replacement tenancy - ie a new AST is created between the same landlord and tenant for the same property on substantially the same basis, - TDP will apply to the initial deposit that was paid prior to 6 April 2007.

Q.32 Can landlords avoid TDP by not taking a deposit at all?

A. Other options have always been open to landlords but most landlords will want to continue to take a deposit in order to protect their interests. Existing Deposit Schemes Q.33 Where do these provisions leave organisations that already have voluntary schemes up and running? TDP will replace voluntary schemes. Voluntary schemes will not be permitted to take new deposits in England and Wales from 6 April 2007. Any private organisation was eligible, under the competitive tendering process, to submit a bid to run a scheme. DCLG recognise the specialised knowledge that such organisations have and they were welcome to submit bids in response to the two Notices published in the Official Journal of the European Union in August 2005.

Q.34 Some local authorities operate rent deposit schemes. Will these be covered by TDP?

A. It depends. Where a rent deposit scheme actually pays money to the landlord on behalf of the tenant, then this will need to be protected by TDP. However, where the rent deposit scheme offers a letter of guarantee, no money passes to the landlord, so TDP will not apply.

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NALS AGENTS WELL PLACED TO MEET NEW CUSTODIAL REQUIREMENTS SET BY GOVERNMENT (Press Release November 2006)

The National Approved Letting Scheme (NALS) has welcomed the much-awaited announcement from the Government over the awarding of contracts to operate the new Tenancy Deposit Schemes coming into effect in April 2007. NALS has reassured member firms of their strong position in terms of being able to access an insurance based scheme and continue to hold deposits if they choose to do so.

NALS chair Caroline Pickering said: “Firms which have recognised the long term benefits of being part of a Government backed accreditation scheme will now be able to access the statutory Tenancy Deposit Schemes. We are currently in discussions with The Dispute Service Ltd1, which has been awarded a contract, on the review we are undertaking of NALS Client Money Protection arrangements, to ensure our cover for accredited firms fully meets their requirements. We will also be interested to learn more about the scheme operated by the National Landlords Association (NLA)2 which we understand agents can also access. With the legislation coming into effect in April 2007, agents who are not part of NALS or a professional body should be looking at the way in which they operate their business if they wish to continue to hold deposits."

Pickering’s commitment to NALS firms and driving industry best practice doesn’t stop there - recently aboard as the new voice of NALS, she’s keen to push further ahead in driving up standards in the private rented sector:

“This move by the Government has been a long time coming for the industry with around 60 per cent of firms totally unregulated. These new requirements raise the bar for those who have never come under any form of regulatory umbrella and if they want to avoid the position of having to tell landlords that they are not allowed to hold deposits, as they do not meet scheme requirements, they should act now. We’re continuing to work to actively support accredited firms to highlight the benefits of seeking out an agent who displays our logo.”

NALS is backed by the Government and leading professional bodies and is the most reliable benchmark for landlords and tenants to compare the standards of service they receive from residential lettings agents. All members of the scheme offer client money protection cover, maintain professional indemnity insurance and operate professional customer complaints procedures.

For more information visit www.nalscheme.co.uk

1. The Dispute Service Limited will run an insurance-based scheme, directed primarily at letting agents. It will also run the scheme’s Alternative Dispute Resolution service.

2. The National Landlords Association is the UK’s largest private rented sector landlord association and has members across the United Kingdom. It protects and promotes the interest of private residential landlords and represents their views to government, local authorities and the media. The NLA seeks a fair legislative and regulatory environment for the private-rented sector while aiming to ensure that landlords are aware of their statutory rights and responsibilities. It campaigns to raise standards in the private rented sector whilst fostering a professional and amicable relationship between landlord and tenant.

The National Approved Letting Scheme board comprises: Caroline Pickering (Chair), representatives from RICS, ARLA and NAEA who are Directors of the Scheme, alongside representatives from DCLG, the BPF and the Housing Corporation.

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NLA wins contract to run Tenancy Deposit Protection Scheme

The National Landlords Association (NLA) is delighted to announce that, in partnership with Hamilton Fraser Insurance (HFIS plc), it has been awarded a government contract to operate an insurance-based tenancy deposit protection scheme. The NLA will sponsor the scheme which Hamilton Fraser will administer.

The Housing Act 2004 requires the Government to introduce mandatory tenancy deposit protection. With effect from 6 April 2007 any landlord taking and holding a deposit on an Assured Shorthold Tenancy (AST) in England and Wales will by law be required to be a member of such a scheme.

The scheme will safeguard tenants’ deposits, ensure that they get part or all of their deposit back at the end of the tenancy if they are entitled to, and offer an alternative way of resolving disputes.

“Our key corporate objective is to nurture and encourage a professional private-rented sector. We support initiatives aimed at preventing malpractice among the small minority of rogue landlords who wrongly withhold deposits”, said David Salusbury, Chairman of the NLA. “The award of a government contract to run such a scheme is a major step forward for the NLA and reflects the growing professional role of the Association”.

The Scheme will be the only tenancy deposit protection scheme that is specifically designed for landlords wishing to hold deposit money themselves during a tenancy. Lettings agents and other third parties acting on behalf of landlords, as individual landlords, will be eligible to join the NLA scheme.

David Salusbury continued: “Taking a deposit against unreasonable damage to a property is one of the few safeguards open to landlords. We have a scheme that enables landlords to hold tenancy deposits in a manner that is fair and equitable to both landlord and tenant. We hope that all those involved in the market will welcome this development as a positive contribution to the well-being of the private-rented sector”.

Eddie Hooker, Managing Director of Hamilton Fraser Insurance, the administrators of the scheme, said: “After an exhaustive 18-month procurement process, we are delighted to have been awarded the contract. In our experience, as major suppliers of property and rent guarantee insurance to residential landlords, we see a significant number of claims for damage to properties caused by a minority of tenants and for non-payment of rental income. Our scheme allows the landlord to retain control over the deposit he receives from the tenant, which for many landlords is the most important safeguard against damage to the property and any other such problems that might arise”.

David Salusbury concludes: “This important new initiative gives us the opportunity to further our aim of raising standards in the private-rented sector, for the benefit of both tenants and landlords”.

The National Landlords Association, founded as the Small Landlords Association in 1973, has members right across the United Kingdom, including five special corporate members, Birmingham Midshires, Bristol & West, Mortgage Express, Mortgage Trust and Paragon, and forty local authorities who are associate members. It protects and promotes the interests of private landlords of residential property and represents their views to government, local authorities and the media. The NLA seeks a fair legislative and regulatory environment for the private-rented sector while aiming to ensure that landlords are aware of their statutory rights and responsibilities. It campaigns to raise standards in the private-rented sector whilst fostering a professional and amicable relationship between landlord and tenant.

jml Property Services are members of the National Landlords Association i

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TDS Announcement article from Pain Smith Solicors Click Here This information courtesy of PainSmith Solicitors who are a niche practice specialising in Landlord and Tenant Law. Based in Medstead in Hampshire, they are ideally situated to provide an efficient service to clients nationwide as well as those based in Central London and the Home Counties

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