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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 are required to 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 receiving the deposit. There are two types of TDP scheme – a custodial scheme and an insurance-based scheme – and three Government-approved TDP scheme providers:

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 on an assured shorthold tenant.

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.

There were around 3.9 million deposits protected in England and Wales at the end of March 2019, with a total value of around £4.41 billion, according to statistics published by the Tenancy Deposit Scheme.

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

Legal challenges and amendments

The legislation governing mandatory TDP in England and Wales has been modified several times. The Localism Act 2011 amended (with effect from 6 April 2012) sections 213 and 214 of the Housing Act 2004 to resolve issues arising from several court cases. The amendments ensured that landlords who had failed to protect a deposit could continue to serve a section 21 notice to terminate an AST if they did, eventually, protect the deposit. The changes also made it clearer that late protection of a deposit would be subject to a financial penalty determined by the courts.

The Deregulation Act 2015 tackled further issues arising from case law. The Act clarified that, for those tenancies starting before 6 April 2007 but renewed or rolling into a statutory periodic tenancy after that date, any initial deposits received would need to be protected by a TDP. This Act also provided that a section 21 notice could not be served if a deposit was not protected, even if the tenancy (AST or statutory periodic) started before 6 April 2007.

Further attempts to amend TDP were made as the Housing and Planning Act 2016 progressed through Parliament. None of the proposed amendments were made. Most recently, the Tenant Fees Act 2019 has placed a cap on the amount that tenants can be required to pay in the form of a security deposit in England.

Critics of the TDP process point to the number of non-compliant landlords; the length of time it can take to resolve disputes; as well as persistent loopholes and abuses of the schemes.

Further reforms are planned

The Government is considering whether improvements can be made to the TDP process in England to benefit both tenants and landlords. The Ministry of Housing, Communities and Local Government (MHCLG) launched a call for evidence on Tenancy Deposit Reform in June 2019, which sought views on potential improvements to the current system and alternative innovative approaches to deposit protection. Submissions were accepted up to 5 September 2019. The Government is currently analysing the consultation responses.

In the Queen’s Speech December 2019, the Government announced that “a new lifetime deposit”, to assist tenants when moving from one tenancy to the next, will be taken forward through the forthcoming Renters’ Reform Bill 2019-20. Legislation will be introduced when parliamentary time allows.

 


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