What's the point of the schemes?

If you're a tenant, the damage deposit you hand over to your landlord when your tenancy starts will be protected from your landlord misusing it. Your landlord can put your deposit into a scheme which holds onto it until the end of your tenancy or he can pay insurance for it to be refunded should the money go missing.

As well as protecting tenants' deposits, new laws have also been introduced so disputes between tenants and their landlords can be dealt with more easily. Instead of the landlord and tenant having to go to court if they cannot agree over the return of the deposit, the dispute can be referred to independent arbitrators to resolve. This is a free service and it is far quicker and easier than going to court.

When do the new rules apply?

The rules apply to all deposits taken for Assured Shorthold Tenancies after 6 April 2007. From this date, if you're a landlord and are taking a deposit from your tenant for any damage to the property, you must let the tenant know the details of which tenancy deposit scheme you are using within 14 days of receiving the deposit. Deposits taken before 6 April 2007 will only need to be protected if a new tenancy agreement is given to the tenant after this date. 

A few tenancies will not come within the scheme, such as lettings with a rent of over £25,000, resident landlords or company lets.

What are the schemes?

If you're a landlord, you have the choice of three government authorised schemes which you can use and two types of scheme are available. They are:

1.  Custodial scheme

You, as landlord, pay the deposit money to the scheme administrators, who then pay it out to the tenant or to you, as appropriate, at the end of the tenancy. This scheme is free of charge for you to use. There is only one custodial scheme - The Deposit Protection Service Ltd.

2.  Insurance-based schemes

You are allowed to hold the deposit, but you have to pay a fee. The scheme administrators take out insurance so the deposit can be refunded to your tenant if you don't pay back his deposit. There are two insurance-based schemes:

• The Dispute Service Ltd. The organisers of this scheme formerly ran a voluntary scheme for letting agents and this scheme is aimed mainly at agents.
  
  
• mydeposits. This scheme is owned jointly by the National Landlords' Association and Hamilton Fraser Insurance, and is aimed mainly at landlords. 

What happens if the landlord and tenant can't agree?

If the landlord and tenant are disagreeing about the division of the deposit at the end of the tenancy, any undisputed element should be paid as agreed. The disputed element must then be paid to the scheme administrators for insurance-based schemes and the dispute will then be referred to arbitration. This is free of charge and the arbitrator will normally make a decision within 28 days of receiving the paperwork. The scheme administrators will pay the deposit out, as appropriate, within ten days of receiving the arbitrator's decision. 

Are there penalties for not using a scheme?

If you're a tenant and your landlord doesn't protect your deposit, you can go to court and ask for:

• The return or the deposit, or
  
• An order that the deposit be protected under the custodial scheme, and
  
• An order that the landlord pays you a sum equal to three times the deposit amount, within 14 days

Your landlord will also not be able to ask you to leave the property while the deposit is unprotected.

These schemes only apply to tenancies in England and Wales. For more information on the schemes, see the schemes' websites listed above.

Tessa Shepperson is author of Lawpack's Residential Lettings Kit and book The Complete Guide to Residential Letting, and editor of the popular online legal information service, www.landlordlaw.co.uk.

Further Information
Buy and download Lawpack's tenancy agreements including the latest deposit scheme legislation
Buy Tessa's book, 'The Complete Guide to Residential Letting', on all aspects of tenancy law