Tenancy deposit schemes – what are your options?

Deposit protection legislation came in on 6th April 2007, in response to increasing concerns over tenants’ deposits being unfairly retained by landlords. Back in 2003, Shelter stated: “Although most tenancies end without dispute, around 20% of households say that part or all of the deposit from their most recent tenancy was unreasonably withheld.”(1).

The law now requires all landlords and agents taking a deposit for an assured shorthold tenancy to protect that deposit, either by lodging it with a 3rd party ‘custodial’ scheme provider, or by taking out an insurance product. That gives tenants peace of mind that if their landlord wants to make any deductions from their deposit and they disagree, the landlord will have to prove that it is reasonable.

There are currently three government-approved scheme providers: the Deposit Protection Service (DPS), My Deposits and the Tenancy Deposit Scheme (TDS).

Having started purely as a custodial scheme, the DPS began offering insurance in April 2013 and on April 1st this year, the TDS and My Deposits, having previously been insurance-only schemes, launched their custodial offerings. This means all three approved providers now offer both custodial and insurance-based products, giving landlords and agents a bigger choice, but is there really much difference between the providers and which type of scheme is best for you, as a landlord?

How it works

With the custodial scheme, which is free of charge, you pay the tenant’s deposit over to a scheme provider and they hold it in a client account until repayment is requested. At the end of the tenancy, you must list any deductions you wish to make and then the tenant is contacted to confirm whether they agree. If they do, the monies are paid back to each party by the scheme provider; if the tenant disputes the deductions, it can be passed to the scheme’s third-party dispute resolution service.

With the insurance-based scheme, you keep hold of the deposit yourself and pay a small fee to the scheme provider. At the end of the tenancy, again, if there is any dispute, the tenant can refer it to the scheme provider for resolution.

In both cases, you must lodge or register the deposit within 30 days of receipt and provide your tenant with ‘required information’, including where the deposit is held, how they can apply to get it back at the end of the tenancy and what to do if there’s a dispute (2). All scheme providers have a facility where you can download and print out this required information. The deposit must be returned within 10 days of the end of the tenancy.

If you fail to protect the deposit and issue the required information within the stipulated timescales, you can be fined up to three times the deposit amount and will be unable to serve a Section 21 notice to regain possession of the property.

If you do enter into a dispute, your chosen scheme’s legally qualified independent adjudicators will look at the evidence and make a decision, which is final. All the schemes’ dispute resolution services are free and a much quicker and cheaper alternative than going to court.

Costs and benefits

The custodial scheme is free with all providers; these are the VAT-inclusive landlord fees for each insurance scheme (correct as at May 2016):



My Deposits


Standard landlords

NLA members / LRS accredited

Standard landlords

RLA & LLAS members

One-off initial registration fee






Each deposit under £500






Each deposit over £500







Clearly, the Tenancy Deposit Scheme is the cheapest of the three for landlords who are not members of, or accredited by any of the bodies referenced. For those who are members of the NLA or RLA, and landlords of properties in London who are either accredited by the London Rental Standard or a member of the London Landlords Accreditation Scheme, there’s a clear affiliation with one scheme and discounted rates. Unfortunately, there are no further discounts available for landlords with large portfolios, only for letting agents, businesses and corporate landlords.

As for the benefit of one type of scheme over the other – custodial or insured - it comes down to cost and whether you want to be able to access the money quickly. While the custodial schemes are free, if your tenant disappears suddenly and you want to retain the deposit, either because you’re owed rent or the property has been damaged, it can take some time to get the money back via a ‘single claim’ process. Although you pay for the insurance schemes, the cost is tax deductible and you retain control of the money.

However you choose to protect your tenant’s deposit, the legislation seems to be working for the few that have a dispute. The latest figures from the Tenancy Deposit Scheme’s annual report for 2014/15 shows that, of the 1.3 million tenant deposits protected by them, out of 4.3 million households renting privately (3), only around 1% were disputed (4). Of those disputed in 2014/15, division of the total monies awarded was almost equal between landlords and tenants, with less than a fifth of cases resulting in a 100% award to either party (4).

These latest results seem to indicate that either the legislation has been a big success to date, or the number of disputes is simply far lower than was originally estimated by Shelter. Either way, the good news for you, as a landlord, is that the chance of finding yourself in a dispute with your tenant over their deposit is extremely low, but it’s still important to make sure you have a detailed and properly-administered inventory taken at the start and end of the tenancy, and that you carefully document all dealings with your tenant, particularly relating to the condition of the property.



 This information has been provided by our partner Mortgage Advice Bureau. For more information relating to Mortgages or for Mortgage Advice please visit Mortgage Advice Bureau.


Cron Job Starts