Landlord Law Essentials

Landlord Law Essentials Part 6 - Tenancy Deposits

Tenancy deposits and tenancy deposit protection is a subject which has caused a few headaches over the years. But before we look a tenancy deposits, lets take a quick look at holding deposits.

Holding Deposits
About Tenancy Deposits
The Deposit Calculator
The tenancy deposit protection scheme
The Prescribed Information
Disputes and adjudications
Penalties for non-compliance
Alternative Schemes
Further Reading

Holding Deposits

This is where you take a sum of money to ‘hold’ the property for an applicant.

Holding deposits are now regulated by the Tenant Fees Act , and the following rules apply:

You cannot charge more than one week’s worth of rent
You must provide the applicant with a copy of the tenancy agreement
You can only hold the deposit for up to 15 calendar days unless otherwise agreed in writing

Once the 15 day (or agreed extension time) is over the money must either be returned to the applicant or, if the following conditions apply, the money can be withheld:

The applicant fails a right to rent check
The applicant lies to you in something that affects their suitability as a tenant
The applicant decides not to proceed with the tenancy
The applicant fails to take all reasonable steps to enter into the tenancy, for example, if they fail to respond to reasonable requests.

You must tell the applicant in writing if you withhold the money and say why.

Landlord Law members will find a more detailed guide here and draft letters and a receipt form (which provides for the 15 day period to be extended). Non members can read about this in our blog post.

The rules are very similar in Wales, save that Welsh landlords need to provide additional information.

Lets now turn to tenancy deposits.

About Tenancy Deposits

It is generally considered essential that landlords take a deposit from a tenant at the start of the tenancy. This is used as a fund for you to use at the end of the tenancy, if the tenant leaves owing money – either to put right problems with the property such as damage or cleaning, or to cover unpaid rent.

There are alternatives –

taking a guarantee from a friend, relative or guarantee company
or using one of the ‘alternative’ schemes (which are actually also guarantees, discussed briefly below), or
relying on your insurance, in particular, rent guarantee insurance

However, with a guarantee, you have to chase the guarantor (or make a claim if you are using an ‘alternative scheme’)– you do not have the money there when you need it.

The alternative schemes can be good, but some landlords have complained about the administration involved in claiming for payment and there can be hidden fees

Insurance policies will generally only cover tenancies where the tenants satisfy strict referencing. These are not the ones likely to be causing the problems!

Although landlords often moan about them, nothing really seems to be as satisfactory as taking a deposit, and the prospect of losing their deposit motivates tenants to keep the property in a good condition and leave it clean and tidy when they go.

A bit of history

Prior to 2007, sadly, many landlords abused their position with deposits, often it seemed with impunity.

Legally, a deposit is the tenant’s money, and they are entitled to its return unless there is a genuine claim. However, many landlords (not all but a substantial minority) tended just to pocket the money and refuse to return it.

After numerous complaints about this and campaigns by tenant organisations, regulations for a tenancy deposit scheme were introduced by the government in the Housing Act 2004.

Unfortunately, the legislation was not well drafted, and there have been two amendments, once in 2012 and once in 2015.

The Tenant Fees rules

The 2019 Tenant Fees legislation then limited the amount of money that could be taken for a deposit (in England) to 5 weeks’ worth of rent (or 6 weeks’ worth of rent if the annual rent was over £50,000).

It is important that no more than this is taken (even by a penny) as otherwise this is an offence.

We have a calculator that can be used to calculate the correct sum, which you will find below.

The tenancy deposit protection scheme

This came into force in April 2007 and was then amended in 2012 and again in 2015. It currently only affects tenancies let on an assured shorthold tenancy (or under an occupation contract in Wales) – however, this is the majority of lets in the private sector today.

After 1 May 2026, when the Renters Rights Act abolishes assured shorthold tenancies, the same rules will apply to assured tenancies.

The rules provide for the landlord to

protect the deposit within 30 days AND
serve a notice giving prescribed information.

Both are necessary. See below for the penalties which apply if this is not done.

There are two kinds of deposit schemes

Custodial schemes and
Insurance based schemes

Custodial Schemes

These are free to use, but you need to pay the money over to the scheme administrators who hold it for the duration of the tenancy. The scheme gets its fee from the interest earned on the deposits held.

Custodial schemes have many advantages. For example

Landlords who use letting agents are protected from the situation that can arise if their agent goes insolvent, taking the deposit money with them (although now we have client money protection, this should not happen).
The landlord is liable to the tenant to return the deposit at the end of the tenancy, even if it is the agent who lost the money.
It also gives tenants peace of mind as they know that their deposit is held securely and that it will be dealt with properly.

The disadvantage of the scheme is that it takes several days, and sometimes much longer if one of the parties is unavailable, for the money to be released.

Insurance based schemes

This is where the money is held by the landlord or letting agent. However, the landlord or agent has to pay a fee to the scheme. This covers the scheme costs if the landlord or agent loses the money and they have to make good to the tenants.

One big reason why landlords often prefer the insurance based schemes is that it allows them to refund the deposit money immediately to tenants without having to go through the procedure of claiming this from the scheme.

Tenants like this as they generally need the deposit to use for their next property.

The Three Deposit Companies

There are three companies who are authorised by the government to run tenancy deposit schemes:

The Deposit Protection Service (DPS)
Tenancy Deposit Scheme (TDS)
My Deposits

They are all much of a muchness, and all offer both custodial and insurance based schemes.

The Prescribed Information

All landlords (or agents where agents deal with the deposit) must, in addition to protecting the deposit, serve ‘prescribed information’ on the tenants. Or, if the deposit money was paid to the landlord or agent by someone else, the prescribed information must be served on them, too.

Note that it is the information which is prescribed. There is currently no prescribed form, although it looks as if a prescribed form will be published on or shortly before 1 May 2026.

Most of the deposit schemes will provide a form, and if so, this is the form that you should use. Note that serving a copy of the deposit certificate and the scheme rules leaflet will not cover all the prescribed information required, so if your scheme does not provide a form, you should use one obtained elsewhere.

We have a Landlord Law form with versions for both England and Wales.

Note, there was a case in 2012 where a tenant challenged the landlord’s right to possession under section 21 as he had not provided all the prescribed information. The landlord said that this was not necessary as the information was freely available on the internet! The Judges disagreed, though, and he lost his claim.

Keep proof of service of the prescribed information, just in case this is challenged later.

If you are renting property through a limited company or are an agent operating through a limited company, you should read this article.

Disputes and adjudications

Often, at the end of a tenancy, there are disagreements, with the landlord wanting compensation for damage and the tenants objecting to this.

Landlords and agents should try to resolve this themselves, but this is not always possible. For this situation, all three deposit schemes provide a free adjudication service.

Full details of the adjudication schemes can be found on the scheme websites (which are very informative), but here are a few tips.

It is important to remember when bringing a claim, that the starting point is always that it is the tenant’s money. So, the burden of proving that the deduction is reasonable rests on you, the landlord. The tenant does not have to prove anything.

What you have to prove

As with all legal claims, you have to prove two things:

1. Liability – ie that the tenant is actually liable for the sum claimed. For example tenants will not be liable for ‘fair wear and tear’ – ie the ordinary damage that can be expected when a property is being lived in.

2. Quantum – this is the amount of money you are claiming. This has to be reasonable and relate to the actual loss suffered by the landlord. So for example you cannot get ‘new lamps for old’. If items were not new, the sum that can be claimed will be reduced accordingly.

It also means that you can’t just say ‘the tenant left the property in a disgusting stage so I should be entitled to all the deposit’. You need to give details to the adjudicator and prove your case.

Essential evidence

The adjudicators all deal with cases on a paperwork basis only and do not visit the properties. It is essential, therefore, that full evidence is provided by landlords to support their claim.

Landlords often complain that adjudicators favour tenants, but adverse decisions are frequently made because inadequate evidence has been provided to support a landlord’s claim.

Remember that adjudicators do not have second sight! You have to prove your claim by providing sufficient evidence.

The evidence you provide should include:

A detailed inventory of the property at the time the tenant went in. This should either be signed by the tenant as agreed or prepared by an independent third party such as a letting agent or inventory clerk. A proper inventory is essential and if this is not available, then your claim is unlikely to succeed. Note that the inventory should also record that the property was clean at the start or you will be unlikely to succeed in any claim for cleaning costs.
A detailed description of the property at checkout – this should document the difference between the item in question at the start (as evidenced by your inventory) and at the end of the tenancy.
Estimates and invoices for any cleaning, repair work or replacement items
A detailed schedule of arrears if you are claiming for rent arrears
Any photos (or videos) you wish to show the adjudicator to prove the condition of the property. Note, however, that these must be clear and have evidence to prove the item shown and the date the picture was taken. The best way to do this is to write on the back of photographs and get the tenants to sign and date them at check-in

Further information and helpful guides regarding adjudication are available on all three of the schemes’ websites.

Penalties for non-compliance

On the whole, the schemes have worked well, and thousands of deposits have been protected safely. However, many landlords still do fail to protect.

The main penalties are:

A prohibition on using section 21 unless the deposit money has been returned to the tenants, and
the right for tenants to apply to the Court for a penalty payment of up to three times the deposit sum. Unless the tenant has made a claim for the penalty which has been resolved either by court order or settlement.

Unfortunately, the original penalty rules failed to operate as expected and it has been necessary to amend them twice. The rules currently apply as follows:

The deposit and the prescribed information notice must be served within 30 days.
If the deposit remains unprotected after 30 days the landlord will have no defence to a claim by the tenant for the penalty payment, until the Limitation Act takes effect after six years.
The penalty awarded can vary between the value of one to three times the deposit amount, at the discretion of the Judge.
Where the deposit is not protected or is protected late, landlords will only be able to use section 21 if the deposit has been refunded to the tenants before service of the section 21 notice. However, refunding the deposit money will not help a landlord defend a claim for the penalty.

After 1 May 2026, when the Renters Rights Act comes into force, and section 21 is abolished, the prohibition on eviction will instead apply to all section 8 claims apart from claims based on grounds 7A or 14 (which relate to anti-social behaviour). The Housing Act 2004 will be amended accordingly.

It looks as if late protection of the deposit will no longer prevent a possession order from being made.

Old deposits

Because the law has had to be changed twice, the following rules apply to older deposits:

Deposits paid before 6 April 2007 where the tenancy became periodic before that date and has continued as a periodic tenancy ever since –

These deposits do not need to be protected and the prescribed information does not need to be served, unless the landlord wants to use section 21 (or after 1 May 2026 any of the section 8 grounds apart from grounds 7A and 14). In this case, this needs to be done before any notice is served.

Deposits paid before 6 April 2007, where the tenancy became periodic after that date, and has continued as a periodic tenancy ever since –

These were the subject of a case, the Superstrike case, in 2013, which showed up another problem with the legislation. As a result of this all landlords in this situation were given until 23 June 2015 to protect the deposit and serve the prescribed information.

Deposits paid between 6 April 2007 and 5 April 2012

These should have been protected and prescribed information served by 6 May 2012 (under the provisions of the Localism Act 2012).

Deposits paid after 6 April 2013

These must have been protected and the prescribed information served with in 30 days of payment of the money (ie not the start of the tenancy).

Note also that landlords who properly protect the deposit and serve the prescribed information during the initial fixed term, do not have to re-serve the prescribed information again in any subsequent tenancies, provided there is no change in the parties or the property let. This will not apply after 1 May 2026 as the Renters Rights Act will abolish fixed terms.

Landlord Law members can check compliance with our tenancy deposit compliance checker.

Alternative Schemes

These are also known as ‘deposit replacement schemes’.

They are initially more affordable for tenants as they will only have to find a modest fee, normally one week’s worth of rent, as opposed to a month to five weeks’ worth of rent, as is normal with traditional deposit schemes.

However, the fee is not refundable (whereas tenants get all of their deposit back if landlords do not make a claim), and these schemes can prove more expensive for tenants if a large claim is made.

Landlords need to be aware that this is actually a guarantee scheme, not a deposit or insurance service. So you need to be sure that the company will be good to pay any claims when the tenant vacates – which could be many years away.

Here are a few more points about alternative schemes:

Landlords must always offer the tenants the option of paying a traditional deposit instead of the alternative scheme. Otherwise, this will be a breach of the Tenant Fees Act 2019 and will carry penalties
Be aware that there are often additional fees, in particular for using their adjudication service, which is free with traditional deposits
Check out what protection you have in the event that the scheme fails – some of these schemes are protected under the financial services legislation, others not. If there is no mention of anything on the scheme website, then there is unlikely to be any protection.
Note that some schemes will offer more than the five weeks’ worth of rent protection available with traditional deposits. However, this will not be much use to you if the company has gone insolvent, when the tenant vacates in ten years time!
If you are using an agent, make sure they are offering a traditional deposit as well as their scheme (and not just pushing their own scheme) as if not, you will be liable jointly with the agency under the tenant fees rules.

Landlord Law members can find out more about alternative schemes here.