Those landlords that have been taking a deposit from their tenant since 6th April 07 should know that they need to use either the “custodial” scheme where a third party holds the deposit or one of the two “insurance” backed schemes allowing the landlord to hold it. A landlord also has to tell tenants which scheme they are using within fourteen days of receiving the deposit by issuing them with information as prescribed by section 213 of the Housing Act 2004.

If a landlord takes a tenancy deposit and doesn’t use one of the approved schemes, penalties include having to pay the tenant an amount of three times the deposit. Also, a landlord will be unable to regain possession under the so-called “accelerated possession procedure” using a section 21 Notice.

Landlords shunning deposits
Evidence has emerged that a significant number of landlords are not taking a tenancy deposit at all. A recent reader survey by “Landlord” magazine show that 23% of landlords surveyed are choosing not to take a deposit at all leaving them potentially open to bearing the financial costs of incurring damage to their property.

Some landlord insurance products are now coming packaged with the option of tenancy deposit scheme cover included in the premium.

This product is particularly attractive to landlords that whilst wanting to protect themselves against damage caused by tenants do not want to appear on any Government database. Not taking a deposit is sometimes an advantage for landlords when marketing their buy-to-let property to certain tenants groups.


Custodial scheme most popular
For those landlords that are using the approved schemes, the most popular by far is the free custodial scheme operated by the Deposit Protection Service . The survey of readers of Landlord magazine revealed almost 50% of respondents were using this tenancy deposit scheme.

Deposit Protection Service had as of the 12 November 2007 a total of 61,522 agents and landlords registered with the scheme and had taken 147,911 deposits. The Deposit Protection Service has now returned over 4,700 deposits totalling ?2.5 million. They claim that all money is now repaid in just 5 days from completion of the claim process.

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Reclaiming a landlords deposit
Currently Deposit Protection Service reports that more than 50% of all requests from landlords for a deposit repayment are delayed. This is because they claim that landlords and tenants have forgotten to include their unique repayment IDs. Landlords should be aware that for a successful joint deposit repayment to be made, and to protect each party against fraud, both the landlord's and tenant's repayment IDs must be submitted. (a landlord’s unique ID number is 5 digits long and can be found on their deposit confirmation letter sent by The Deposit Protection Service five days after a deposit has been submitted.)

Once a tenancy is ended then to initiate the repayment of a deposit, either the landlord/agent or the tenant needs to login to their account and complete an online form.

Either:

1. Both the landlord/tenant complete the online form together, including both their unique IDs. To see a diagram see here

Or

2. The landlord initiates the claim by completing the online form and submitting their repayment ID. This submission will automatically generate a notification to the tenant to complete their details, including their unique ID.

Or

3. The tenant initiates the claim by completing the online form and submitting their repayment ID. This submission will automatically generate a notification to the landlord to complete their details, including their unique ID.

Repayment IDs are used as a security measure to ensure the deposits cannot be claimed by one party (for instance the tenant) without the consent of the other (i.e. the landlord) or indeed by anyone else. The tenant and the landlord do not have the same repayment ID as they are unique to each party.

If a landlord has forgotten or lost their repayment ID, they are advised by the Deposit Protection Service to submit an online request.

New developments
Currently, when a landlord initiates a repayment, the request for a tenant response is sent to the tenancy address. However, in a number of instances, the tenant has already moved to another address and has not recorded this against their account. During the week commencing 19 November 2007, the Deposit Protection Service are introducing the facility for landlords to record the forwarding address. This will speed up the process of contacting the tenant and the payment of the deposit.