Under the Housing Act 2004, landlords in England and Wales must protect any tenancy deposit received under an assured shorthold tenancy (AST) in a government-approved deposit protection scheme within 30 days of receiving it. There are three approved schemes: the Deposit Protection Service (DPS), MyDeposits, and the Tenancy Deposit Scheme (TDS). Failure to comply can result in penalties of one to three times the deposit amount.
Deposit protection schemes operate in two ways: custodial (where the scheme holds the deposit) and insured (where the landlord holds the deposit but takes out insurance with the scheme). The custodial option is free for landlords, while insured schemes charge an annual fee. Both provide the same level of protection for tenants and offer alternative dispute resolution (ADR) services.
Within 30 days of receiving the deposit, the landlord must also provide the tenant with prescribed information. This includes the scheme name and contact details, the landlord’s or agent’s contact details, the deposit amount, the property address, how to apply for release of the deposit at the end of the tenancy, and what to do if there’s a dispute. This information must be provided in the prescribed format specified by the relevant scheme.
At the end of a tenancy, the deposit (or the agreed portion) should be returned within 10 days of both parties agreeing how much is to be returned. If there’s a dispute about deductions, the scheme’s ADR service can adjudicate. Common reasons for deductions include damage beyond fair wear and tear, unpaid rent, cleaning costs, and missing inventory items. All deductions must be evidenced and reasonable.
Non-compliance with deposit protection rules has significant consequences. Landlords who fail to protect a deposit or provide prescribed information cannot serve a valid Section 21 notice. Additionally, tenants can apply to the county court for an order requiring the deposit to be protected and for compensation of one to three times the deposit amount.
Custodia helps property managers track tenancy deposits alongside other compliance requirements, ensuring deposits are protected within the statutory timeframe and prescribed information is served correctly.