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As most of you will be aware, since 6 April 2007 landlords of assured shorthold tenancies taking a damage deposit now have to arrange for this to be protected under one of the three government authorised Tenancy Deposit Schemes (TDS), or face penalties.

There are two types of scheme:

The Custodial Scheme.

This is free of charge, the companies running costs are covered by interest from the damage deposit money, which has to be paid over to the scheme administrators. There is only one custodial scheme at present, The Deposit Protection Service.

The Insurance based scheme.

Here the landlord or agent can retain the damage deposit money, but a fee will be payable to the scheme administrators, and the details of the tenancy and the deposit will have to be registered with them. There are two authorised companies running insurance based schemes. The first is Tenancy Deposit Solutions . This scheme is aimed mainly at landlords (although letting agents can also join). It is sponsored by the National Landlords Association and administered by Hamilton Fraser Insurance. There is a modest joining fee (which is slightly lower if you are a NLA member) and then an extra fee for every deposit protected.

The final scheme is run by The Dispute Service . This scheme is aimed mainly at letting agents, who just pay an annual membership fee, which covers all deposits. Although landlords can join, I understand that the vast majority of its membership is from agents.

The three schemes

The three schemes are all different and have different backgrounds. The Deposit Protection Service is owned by Computershare, a huge multinational company which has run a similar scheme in Victoria, Australia for many years.

The Dispute Service previously ran a voluntary scheme for letting agents and is the only one of the three schemes to have its own ‘in house’ mediators. Although the company running Tenancy Deposit Solutions has no background in running tenancy deposit schemes, the National Landlords Association is believed to be the largest landlords association and has looked to make its scheme as landlord friendly as possible.

Extra bureaucracy

Although many landlords are annoyed at this extra layer of bureaucracy, it is important that if a deposit is taken, the rules are followed. The regulations provide for the deposit to be protected by an authorised scheme within 14 days of the money being paid over (which may be earlier than the date of the tenancy agreement), and for a notice giving prescribed information to be given to the tenant during this 14 days. If this is not done, tenants can go to court requesting either that that money be returned or that it be protected under the custodial scheme, together with a fine of three times the deposit money, to be paid to the tenant within 14 days. Also any section 21 notice served on the tenant while the deposit is unprotected will be invalid.

The tenancy deposit scheme legislation has been in force for some time now and all three companies claim that many deposits have been protected with them at that the schemes are working well.

Few claims… far
So far as I am aware, few claims have been brought by tenants for the ‘fine’ of three times the deposit money. It is not entirely clear from the legislation whether the landlord can successfully defend this type of claim by protecting the deposit outside the 14 day period. I have heard of a case where a claim was struck out because the tenant had received all the information before the hearing date. However in this case it seems that the landlord had acted properly and the late delivery of the notice was not his fault. I would be interested to learn of any other decisions.


Landlords can of course elect not to take a deposit, and some are taking two months rent in advance instead (although note that this money cannot be used for damage, only for rent). There are also a number of insurance products available, although these can only be used for tenants who pass the insurers credit referencing.

Free arbitration

The schemes all include a free arbitration service for any disputes regarding the return of the deposit. It will be interesting to see how this develops and the decisions that are made regarding ‘fair wear and tear’. For example many landlords and agencies insist on properties being professionally cleaned, and will make deductions for the cost of this from the damage deposit. However I suspect that this will not be allowed by arbitrators. It is also vital that landlords have a proper inventory form which was checked with and signed by tenants at the start of the tenancy. Landlords who do not have this are unlikely to succeed at arbitration. Any photographs must be clear and where appropriate (for example close ups of scratches) include a ruler to show the scale.

Finally, landlords using the Dispute Service scheme, will be aware that there are circumstances where they may need to make a statutory declaration. For example, if using the single claim process. Note that there is a prescribed statutory fee for witnessing these documents which is £5 with an extra £2 per exhibit. You should not be charged more than this. If you have been charged more, then you should complain to the Legal Complaints Service at . Note that it is best to make your declaration before a solicitor from a reputable local firm, as they are unlikely to overcharge.

© Tessa Shepperson 2008. Tessa is a solicitor and editor of the popular legal information service Landlord-Law at She is also author of ‘Residential Lettings’ and ‘Renting: The Essential Guide to Tenants Rights’ both published by Lawpack publishing.

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