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What is a Tenancy Deposit Scheme?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 05 February 2020
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In the United Kingdom, a tenancy deposit scheme is a program designed to ensure that tenants recover the full amount of their deposits, or the portion they are entitled to, at the end of a tenancy. This form of deposit protection is available to tenants in an assured shorthold tenancy, which is a type of lease where people cannot be evicted without cause and notice is required before a tenancy can be legally ended. This is the most common form of lease in the UK.

When tenants take possession of a property, they are usually asked to pay a deposit to cover property damage, rent in arrears, and any other problems that may arise during their tenancy. At the end of the lease, after the property is inspected, the landlord is required to return the full deposit if no damages were incurred, or provide the former tenant with an accounting of expenses and a partial refund, if any funds are left. Under a tenancy deposit scheme, the deposit is secured, ensuring it will be available at the end of the lease.

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The Housing Act 2004, which came into effect in 2007, requires landlords to participate in a tenancy deposit scheme if they are going to offer assured shorthold tenancy. Landlords have two options for participation. One involves joining an insurance program, where premiums are paid to an insurance company. Another option is a custodial scheme, where landlords submit the full amount of the deposit to a third party, who will hold the funds until the tenant leaves.

If there is a dispute over a deposit, as might occur if a tenant argues that a landlord is claiming damages for normal wear and tear, landlord and tenant can negotiate and the funds will continue to be held until the matter can be resolved. The purpose of a tenancy deposit scheme is to make sure deposits are handled fairly and reasonably and returned to tenants in a timely fashion. Landlord-tenant disputes, when they do arise, are resolved on a case-by-case basis.

Tenants unclear about their rights, including those associated with a tenancy deposit scheme, can get information from a government agency responsible for setting and enforcing housing policy. It can be useful to get informed when looking for a new home or preparing to terminate a lease, to make sure all tenant responsibilities are fulfilled and to be aware of the responsibilities of the landlord. Tenants who feel a landlord is acting illegally can file a report with the government.

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