Many private residential landlords, particularly those with large tenant portfolios, will be concerned by a recent County Court decision. The court held that, even if the tenancy deposit had been protected at the outset of the fixed term of the assured shorthold tenancy (AST), the registration requirements must be followed when a statutory tenancy arose at the end of the fixed term.

The decision effectively increases the burden on residential landlords to ensure they comply properly with registration requirements both at the outset of an AST and after the fixed term expires if the tenant remains in occupation. A failure to do so will risk delays in recovering possession of residential properties and a potential liability to pay compensation to existing tenants. Landlords should therefore monitor their tenancy portfolios carefully to ensure that registration requirements are complied with fully both at the start of a fixed term AST and, crucially, at the end as well.

This business development briefing explains what a tenancy deposit scheme (TDS) is and what a landlord’s obligations are under a TDS.

What is a tenancy deposit scheme?

A landlord under an assured shorthold tenancy (AST) must protect a tenant’s deposit by using an authorised tenancy deposit scheme (TDS) operated by an approved scheme administrator. A TDS has two main objectives:

  • To ensure that, when a tenant pays a deposit, it will be protected and returned to the tenant at the end of the AST, except when the landlord has a legitimate claim on it.
  • To resolve disputes between landlords and tenants using dispute resolution rather than via the courts.

There are two types of TDS:

  • A custodial TDS requires a landlord to pay its tenant’s deposit to a scheme administrator, who holds the deposit until the tenancy ends.
  • An insurance TDS where the landlord retains possession of the deposit, but secures it by paying a fee and insurance premiums to the scheme administrator.

What are a landlord’s obligations under a TDS?

Within 30 days of receipt of the deposit a landlord must:

  • Comply with the “initial requirements” of the TDS.
  • Give the tenant certain prescribed information. This information should be provided directly to the tenant. It is not sufficient to merely identify the TDS and let the tenant make their own investigations.

What sanctions are available if a landlord fails to fulfil their obligations under a TDS?

  • If a landlord fails to comply with the TDS, a tenant can apply to court even if the tenancy has ended.
  • The penalty for failing to comply with the TDS will be between one and three times the deposit.

If you have any questions relating to Tenancy Deposit Schemes please contact our Richard Hemingway.