| The Tenancy Deposit Scheme (TDS) bought about | | | | Association (NLA) and operated by Hamilton Fraser |
| by the 2004 Housing Act introduced from the 6th | | | | Insurance Services plc. This scheme is specifically |
| April 2007 a mandatory system for all assured | | | | aimed at individual landlords. |
| shorthold tenancy deposits. | | | | How do the insurance schemes work? |
| No longer are landlords able to hold deposits | | | | These details are based on the Tenancy Deposit |
| independently. Instead they must choose between a: | | | | Solution Ltd scheme. |
| * Custodial scheme or | | | | The tenant pays the deposit to the landlord as they |
| * Insurance scheme (there are two) | | | | do now. The landlord holds the deposit and notifies |
| The Custodial Scheme | | | | the Scheme Administrator that they have the |
| The custodial scheme is free to use. Its' running | | | | deposit and that it should be protected. |
| costs being financed using part of the interest | | | | At the end of the tenancy the landlord and tenant |
| generated from the deposit monies it holds. It | | | | will agree what happens to the deposit. If the tenant |
| involves the landlord having to hand over the deposit | | | | is dissatisfied and complains to the Scheme |
| monies to a third party organization called the Deposit | | | | Administrator, the landlord will be required to lodge |
| Protection Service (DPS). | | | | within a set period of time the disputed amount with |
| This company is managed by Computershare Ltd | | | | the Scheme Administrator. |
| who have for the last 8 years have run a similar | | | | When the dispute is resolved, the lodged money will |
| scheme in the state of Victoria, Australia. The | | | | be repaid to the landlord and tenant in accordance |
| scheme requires landlords to pay to DPS either | | | | with agreement, dispute resolution, or court order. |
| through a paper based payment or online the entire | | | | If the landlord fails to lodge the disputed amount with |
| deposit amount taken on the grant of the tenancy. | | | | the Scheme Administrator, insurance arrangements |
| How does it work? | | | | will ensure the return of the disputed amount to the |
| * The tenant pays the landlord or letting agent their | | | | tenant when they are entitled to it, and recover the |
| deposit. | | | | amount from the landlord. |
| * The landlord/agent pays the deposit into The DPS | | | | Tenancy Deposit Solution Ltd charges |
| within 14 days of receiving it. | | | | NLA members Non NLA members |
| * Following receipt of the deposit, The DPS will | | | | Scheme Joining Fee (per landlord) £47.00 |
| provide confirmation and details of the protection | | | | £58.75 |
| scheme being used to both the landlord/agent and | | | | Protection Fee (per deposit) £26.00 (first 4 |
| the tenant. | | | | deposits p.a., £30 thereafter) £30.00 |
| * At the end of the tenancy, the landlord/agent and | | | | Annual Scheme Renewal Fee £14.70 |
| the tenant agree repayment of the deposit and | | | | £14.70 |
| inform the scheme administrators. The deposit | | | | Fees include VAT at the applicable rate |
| repayment, divided accordingly and including any | | | | Which scheme should I choose? |
| interest accrued, will be initiated to each party within | | | | For most small landlords with say 1 or 2 properties |
| 10 days. | | | | the custodial scheme run by Tenant Deposit Service |
| * If there is a dispute, The DPS administrators return | | | | (DPS) is probably the most suitable. |
| any undisputed amount (plus interest) to the relevant | | | | This is because with the current Base Rate at 5.5% |
| party, but hold the disputed portion until the | | | | you should receive over 3% pa interest after the |
| Alternative Dispute Resolution (ADR) service or the | | | | DPS take their 2.32% cut. |
| courts decide what is fair. | | | | At this rate a landlord would have to hold deposits |
| Example 1 | | | | above the value of £1500 to earn sufficient |
| A tenant pays a deposit of £700. | | | | interest to cover the annual charge of insuring just |
| At the end of the tenancy, the landlord says he | | | | one property i.e. £26 + £14.70 = |
| wishes to keep £50 to pay for cleaning the | | | | £47.70. |
| flat. | | | | If two properties are involved because there is an |
| The tenant agrees. | | | | additional charge of £26, the amount of |
| £650 (plus interest) is returned to the tenant | | | | deposit that is required to make the insurance option |
| and £50 (plus interest) is returned to the | | | | viable would be considerably greater at £3381. |
| landlord. | | | | These calculations exclude the one off charge of at |
| Example 2 | | | | least £47 to initially register with the scheme. |
| A tenant pays a deposit of £1,000. | | | | Landlords that take very high value deposits and |
| At the end of the tenancy, the landlord says he | | | | have large portfolios will generally be better off using |
| wishes to keep £200 to pay for replacing | | | | the insurance backed Tenancy Deposit Solutions |
| damaged furniture. | | | | scheme which allows them to retain all the interest |
| The tenant disagrees, claiming the furniture was | | | | earned. |
| damaged before they moved in. | | | | Landlords should remember that the situation is fluid. |
| Both agree to use the Alternative Dispute Resolution | | | | If the Base Rate falls; then the size of deposit |
| (ADR) service. | | | | required for the insurance backed scheme to be |
| £800 (plus interest) is returned to the tenant, | | | | economic increases and visa versa. |
| but the disputed £200 (plus interest) is | | | | Landlords Concerns |
| safeguarded until the dispute is settled by the ADR | | | | Concerns have been raised by some property |
| service administrator, and repaid according to the | | | | owners that having to register a tenancy deposit |
| decision. | | | | through any of the schemes will mean that the |
| The Insurance Schemes | | | | Government Agencies, particularly the Inland |
| The alternative is to use one of the two insurance | | | | Revenue, may be able to obtain access to the |
| backed schemes. Here landlords are able to retain the | | | | records if they consider there has been tax evasion. |
| deposit monies but instead are required to take out | | | | Although the schemes incorporate appropriate data |
| insurance to protect the tenant against non return of | | | | protection measures, the Inland Revenue has |
| the deposit if a dispute arises at the end of the | | | | recently achieved a notable success in accessing |
| tenancy. | | | | details relating to foreign bank accounts as part of its |
| Two contracts have been awarded by the | | | | measures to counteract tax evasion. |
| Government; one to The Dispute Service Ltd, the | | | | Undoubtedly, the Government will be able to obtain |
| other to Tenancy Deposit Solutions Ltd. The first | | | | some valuable data relating to the private rented |
| company largely caters for agents rather than | | | | sector from tenancy deposit information. Therefore, |
| individual landlords. They are however working with | | | | some landlords may feel 'uneasy' about providing so |
| the National Federation of Residential Landlords | | | | many details about their property holdings to the |
| (NFRL) to provide a service for individual landlords. | | | | Government. This is particularly the case given the |
| This scheme requires payment of an annual | | | | recent high profile breaches in security witnessed by |
| registration fee and there is a charge each time they | | | | other Government backed schemes such as the |
| are notified of a deposit. | | | | website responsible for making junior doctor |
| The other provider is Tenancy Deposit Solutions Ltd | | | | appointments. |
| which is sponsored by the National Landlords | | | | |