Tenancy security deposits – a landlord’s guide

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Tenancy security deposits – a landlord’s guide

Security deposits are standard practice when letting out properties, they don’t need explaining but, in short, they cover landlords for any unexpected costs from things like damage or rent arrears. Not all tenants will respect the property and you need to be covered for that.

Of course, this doesn’t cover anything that can fall under legitimate wear and tear. Furniture breaks because it is old, boilers stop working and paintwork fades. As a landlord, you need to budget for these costs.

It is not a legal requirement to take a security deposit, but if you do you are required by law to protect via the Tenancy Deposit Scheme.

What am I legally obliged to do with a tenancy security deposit?

Under Section 213 of the Housing Act 2004 you, and every other landlord in England and Wales that has taken a deposit, are required to follow certain rules to be compliant. This is what you need to do:

  • Secure the deposit – After receiving the deposit must be protected within 30 days, even if you only have part of the full payment.
  • Serve Prescribed Information – After securing the deposit Prescribed Information must be sent to the tenant within 30 days.

It is always the landlord's responsibility to ensure they are compliant with the legislation. You must not rely on an agent to cover this for you.

Securing a deposit with the Tenancy Deposit Scheme

By law, any landlord receiving a deposit from a tenant for an assured shorthold tenancy in England and Wales is obligated to protect it into one of three government-backed deposit schemes.

  1. MyDeposits
  2. Deposit Protection Agency
  3. Tenancy Deposit Scheme

These schemes hold a deposit and release it when the tenancy is complete. This protects everyone in the agreement. Again, it is solely the landlord’s responsibility to arrange this, even if you are using a letting agent.

Two types of tenancy deposit protection scheme exist. Insurance-based schemes see the tenant pay the landlord the deposit, then the landlord retains the deposit and pays a premium to an insurer.

With custodial schemes, the tenant pays the landlord the deposit and then they place it in the scheme. This is the most common option used by landlords.

Tenancy Deposit Protection (TDP) WAS introduced in 2004 as part of the Housing Act to improve protections for tenants and raise standards across the private rent sector. This legislation ensures that deposits are handled fairly and has reduced the number of cases of landlord’s exploiting deposits to make quick, extra money – which unfortunately did happen.

But it also allows the landlord to fairly use the deposit to cover any damage or rent arrears that have occurred as the tenant leaves the property, protecting that money to be used for the right reasons.

What Prescribed Information do I need to send to the tenant?

Within 30 days of the deposit being protected you are required to send the following Prescribed Information to the tenant:

  • The property’s address
  • The full amount is taken for the deposit
  • Details of the scheme used to protect the deposit including the schemes contact details
  • Details of any third party that is involved in the deposit process, for example, a letting agent
  • How to get the deposit back
  • Procedures if there is a dispute regarding the deposit

This is a legal requirement and it is recommended to instruct a solicitor to secure a signed document from the tenant stating that they have received and understood this information.

Can I take part-payments on a deposit?

It is not usually recommended that landlords take deposits in part payments, as the rules do not change by doing it this way and it increases the amount of admin involved in sorting the deposit out. A tenant requesting this could highlight that they are in financial difficulty and might ring some alarm bells. The only way to successfully do it this way would be to pay the rest of the full amount into a scheme yourself.

By understanding and following the legal requirements and process involved with taking a tenancy security deposit the process should be simple and protect you and your tenants.

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