What is proposed for tenancy deposits?

A landlord does not have to take a deposit but all those who do so will have to join an authorised tenancy deposit scheme.
Bakproco Ltd will use either one or the other of the following schemes: a custodial scheme or an insurance scheme.

What will a landlord have to do?

• Within 14 days of receiving a deposit from a tenant the landlord will have to:
• Give the tenant (or whoever paid the tenancy deposit on their behalf) information about the deposit scheme which he is using
• Comply with the initial requirements of the scheme which they are using and tell the tenant (or the person who paid the deposit) what they have done to comply with the requirements
• Give the tenant (or whoever paid the deposit) information about the law relating to tenancy deposits.

Under separate regulations there is likely to be a form developed which will hold all this information and which landlords will have to use with their tenants.

What about using other items other than money for a deposit?

The Housing Act specifically forbids anything other than money to be used as a deposit.

If the deposit is not money it is recoverable by the person who gave it from the person who is holding it (landlord or agent).

Landlords will, however, be able to continue to use rent guarantees from third parties and these do not have to be registered with a deposit scheme.

How will a custodial deposit scheme work?

At the start of the tenancy the landlord will receive the deposit and will have to pay it into an account under the scheme. The money is kept in that account until it is paid at the end of the tenancy to a combination of landlord and tenant. The only other money which may be kept in the account is any interest which accrues. While it is in the account the money is not to be used to fund the deposit scheme. The scheme may return the interest (at a rate set by Government) along with the deposit at the end of the tenancy but it does not have to: the scheme administrator is also allowed to keep the interest to fund the scheme.

Either the landlord or tenant can apply "at any time after the tenancy has ended" for the deposit to be returned to them. (There is no specification of when the tenancy is considered to have ended.) If both parties have agreed on how the deposit should be split the administrator of the scheme has to pay out the agreed amounts within 10 days of receiving the request. If the case is subject to a court decision on how the money should be split (and any appeals have been heard and decided) the scheme administrator has to pay out within 10 days of receiving notification of the court decision.

How will an insurance scheme work?

Under an insurance scheme when the landlord receives the deposit at the start of the tenancy he can keep it on the basis that at the end of the tenancy an amount agreed between tenant and landlord will be paid to the tenant. The insurance will come into play if this does not happen.

At the end of the tenancy, if the tenant has requested the repayment of part or all of a deposit and the landlord has not paid it back within 10 days of the request being made, the tenant can approach the scheme administrator. The landlord will then be required to pay the disputed amount into an account within 10 days of receiving notice from the administrator.

Once the tenant and landlord have agreed how the disputed amount should be split, or once a court has done so for them, they can notify the scheme administrator and the money owing to the tenant has to be paid out to him within 10 days. The balance of the money in the account should then be repaid to the landlord.

If it has been decided (either by a court or by landlord and tenant) that the tenant is owed more than the disputed amount held in the account, the administrator still has to pay the tenant the extra amount within 10 days but will also have to request that the landlord reimburse the scheme what is due. The landlord has to comply within 10 days of receiving notice from the scheme administrator. If he fails to do so then the scheme’s insurance will pay out.

Landlords who belong to an insurance scheme may have to pay admin fees and a contribution towards insurance premiums. If a landlord is a member of an insurance scheme his membership may be terminated if he fails to reimburse the administrator for any money they pay out.

The insurance scheme will also have to have safeguards in place to prevent a tenant recovering a deposit twice – from the landlord at the same time as the scheme. If this happens then the administrator can seek to recover payments from the tenant.

Other requirements on tenancy deposit schemes

Both custodial and insurance schemes will have to respond quickly to requests from tenants for assurance that the deposit is being held in a scheme. Both sorts of schemes will also have to ensure that alternative dispute resolution procedures are in place so that there is no need to resort to litigation. However, use of the dispute resolution procedures cannot be made compulsory