What is a tenancy deposit scheme and how does it protect you?

You’ve signed the contract on your new rented property and paid the deposit. But what actually happens to that money when it’s handed over? Will you ever see it again?

That’s where a tenancy deposit scheme comes in. These government-backed programs are designed to keep your deposit safe, make things fair and give you peace of mind. In this guide, we’ll break down what a tenancy deposit scheme is, how it works, and what to do if something goes wrong.

What is a tenancy deposit scheme?

A tenancy deposit scheme is a government-approved program that holds or insures deposit payments for rental properties.

There’s currently a legal requirement for landlords to use a tenancy deposit scheme in England and Wales, for assured shorthold tenancies. These are the most common type of tenancy agreements, so it’s likely that, if you’re renting, you’re on an AST.

The three main government-backed tenancy deposit schemes right now are:

• Deposit Protection Service (DPS)

• MyDeposits

• Tenancy Deposit Scheme (TDS)

How does a tenancy deposit scheme protect tenants?

In short, tenancy deposit schemes exist to help protect a tenant’s money. Their main goal is to ensure that all deposits are kept safe, and are not unfairly withheld at the end of a tenancy.

They do this by placing restrictions on the landlord, preventing landlords from accessing or spending the deposit during the tenancy and requiring them to justify any deductions - for damage to the property, for instance - with evidence.

Tenancy deposit schemes also usually offer a free dispute resolution service, in the event that there’s a disagreement between a tenant and a landlord.

How does a tenancy deposit scheme protect landlords?

Tenancy deposit schemes aren’t just beneficial for tenants, though. They also offer some protections for landlords.

Through their dispute resolution services, tenancy deposit schemes give landlords a neutral third party to manage disagreements, should they arise, with their tenants. They also provide a structured process for claiming costs from the deposit, for damages or unpaid rent.

Plus, taking a deposit in any form encourages tenants to properly take care of the property. Nobody wants to lose money!

What can tenants expect?

So we’ve established that tenancy deposit schemes are, generally, a good idea for both tenants and landlords, and that under current UK law, tenants can fully expect to be entered into one when signing a tenancy agreement.

But what comes next? What can tenants expect after paying their deposit?

First of all, your landlord must protect your deposit within 30 days of payment, meaning they must place it into one of the three official schemes - Deposit Protection Service (DPS), MyDeposits or Tenancy Deposit Scheme (TDS) - and provide you with written confirmation that they have done so.

Along with confirmation, you should also receive a document known as Prescribed Information, which includes the name and contact information of the deposit scheme, details of how to get your deposit back, reasons why deductions might be made and what to do in case of a dispute.

If you don’t receive this, you should ask for it right away - and maybe seek legal advice if necessary.

Finally, when your tenancy ends, you should expect a fair and transparent returns process. You should be given a clear explanation for any deductions that are being made - for damages, unpaid rent or breach of contract - and once agreed, you should receive your deposit back within 10 days.

What if a landlord doesn’t use a deposit scheme?

Remember that landlords are legally required (under the Housing Act 2004) to use a tenancy deposit scheme for all assured shorthold tenancies. If they don’t protect your deposit within 30 days of receiving it, there are consequences.

For starters, you could be entitled to compensation. If your landlord doesn’t protect your deposit, and the dispute goes to court, they could be ordered to pay back your original deposit in full - plus between 1 and 3 times the deposit amount in compensation.

It could also affect evictions: a landlord can only legally issue a Section 21 eviction notice if the deposit has been properly protected in a scheme and the correct Prescribed Information has been supplied to the tenant.

If you suspect that your landlord of non-compliance, you should act as soon as possible. Ask your landlord for details of the scheme they’ve used or, failing that, check with the three approved schemes using your name, postcode and tenancy start date.

If there’s no record of protection, contact Citizens Advice or a tenants’ rights organisation. You could even consider starting a claim in the county court for compensation.

Top tips for tenants

• Always get a written receipt for your deposit.

• Take photos of the property at move-in and move-out.

• Read the inventory carefully.

• Keep a record of communication with the landlord or letting agent.