Tenancy deposit schemes

Why were tenancy deposit schemes introduced?

In June 1998 the National Association of Citizens Advice Bureaux (NACAB) published a report based on CAB clients’ experience of the payment of deposits. In the light of evidence highlighting the difficulties faced by tenants trying to reclaim their deposits from private landlords, NACAB concluded that the case for reform was “overwhelming” and that the failure to regulate deposits damaged the image and reputation of the private rented sector.

What does the legislation require?

Provisions were added to the Housing Act 2004 to place a duty on ‘the appropriate national authority’ to establish at least one statutory tenancy deposit protection (TDP) scheme. TDP schemes became operational from 6 April 2007 in respect of assured shorthold tenancies (AST) created in England and Wales after that date.

In England and Wales landlords/agents must place a tenant’s deposit into a government-approved TDP scheme and give the tenant prescribed information about how the deposit is being protected within 30 days of receipt. There are two types of TDP scheme – a custodial scheme and an insurance-based scheme – and three Government-approved TDP scheme providers:

• Deposit Protection Service
• Tenancy Deposit Scheme
• mydeposits

Failure to protect a tenancy deposit can result in the imposition of a financial penalty. It also restricts a landlord’s ability to serve a section 21 notice seeking possession of a property let on an AST.

At the end of a tenancy, if the landlord and tenant disagree on how much of the deposit should be returned, they have the option of using the alternative dispute resolution (ADR) service provided by the relevant TDP scheme provider. There is no obligation on either party to use ADR, but it will normally be faster and cheaper than trying to resolve a dispute through the courts.

The Tenant Fees Act 2019 placed a cap on the amount that tenants in England can be required to pay in the form of a tenancy deposit.

There were around 4.2 million deposits protected in England and Wales at the end of March 2021, with a total value of around £4.35 billion, according to statistics published by the Tenancy Deposit Scheme (PDF).

Scotland and Northern Ireland have also legislated to make protecting deposits mandatory. The result is similar in all constituent parts of the UK.

Ongoing issues with TDP

Critics of the TDP system point to the number of non-compliant landlords; the length of time it can take to resolve disputes; as well as loopholes and abuses of insurance-based schemes. There are also concerns around the affordability of tenancy deposits and TDP schemes acting as a barrier to those who rely on the return of the money to pay a deposit on a new tenancy.

In 2018, the Government established a Tenancy Deposit Protection Working Group, formed of representatives of tenants, landlords and agents, the TDP schemes and Nationwide Building Society, to consider potential reforms.

Consultation on TDP reform

The Conservative Party Manifesto 2019 promised a “better deal for renters” including a new ‘lifetime’ tenancy deposit to assist tenants moving from one tenancy to the next.

In June 2019, the Government launched a call for evidence on tenancy deposit reform, building on the work of the Tenancy Deposit Protection Working Group. The consultation sought views on potential improvements to the TDP system and alternative innovative approaches to deposit protection. Submissions were accepted up to 5 September 2019.

The Government’s white paper, A fairer private rented sector, was published on 16 June 2022. Alongside the white paper the Government published its response to the call for evidence on tenancy deposit reform. The response set out the Government’s plan to monitor the development of innovative market-led solutions to passport tenancy deposits between properties and keep the current TDP system under review.

Generation Rent, which campaigns on behalf of tenants, expressed disappointment that the Government had retreated from its manifesto commitment to introduce a lifetime deposit.