In accordance with the latest legislation concerned with lettings and rental agreements landlords and letting agents are now required by law to protect deposits over the duration of a tenancy. The change in legislation only affects ASTs (Assured Shorthold Tenancies) although as these are the predominant form of tenancy in the UK most landlords must now use a deposit protection scheme.

The legislation was created for two main reasons, firstly to increase transparency within rental agreements in relation to the holding of deposits and secondly to avoid tenancy disputes from going to court by offering an alternative dispute resolution service to both tenants and landlords. Within the UK there are only 2 types of deposit protection scheme available for use, these are custodial and insurance based.

How the Custodial Deposit Protection Scheme Works:

At the commencement of the tenancy the tenant will pay their letting agent of landlord the deposit sum. At this point the landlord then has 14 days in which to pay the deposit into the deposit protection scheme and inform the tenant that it has been protected as well as any details of the scheme being used.

Throughout the tenancy the deposit is held in the custodial scheme’s bank account, where any interest accrued will be paid to the tenant if they are entitled to it. At the culmination of the rental period the landlord and tenant will normally agree a sum to be returned, often the full deposit although the landlord may wish to withhold a certain amount to pay for damage that occurred during the tenancy.

If either party dispute the amount it is taken to the alternative dispute resolution service that will weigh up the factors of the case and decide a fair amount to be returned. The service’s judgement can however be disputed further and taken to court although this is an expensive route.

How the Insurance-based Deposit Protection Scheme Works:

This scheme works in the same way as the custodial deposit protection scheme although the difference is that the landlord pays an insurance premium to insure the value of the deposit. The insurance ensures that if the landlord refuses to adhere to the insurance policy then the insurance can return it to the tenant. With insurance based schemes disputes are handled in the same way.

The deposit protection scheme has been introduced to provide further clarity for those using ASTs and to also make the dispute process more straightforward, cheaper and less time consuming for all involved.