16 May 2012

Tenancy Deposit Schemes: A Landlord's Guide

Tenancy Deposit Schemes: A Landlord's Guide

Mike Sinclair, Senior Conveyancing Partner, looks at the new Tenancy Deposit Scheme and implications for landlords.

Mike Sinclair, Senior Conveyancing Partner, looks at the new Tenancy Deposit Scheme and implications for landlords.

The Scottish Government has given the green light to the first  Scottish tenancy deposit scheme, The Letting Protection Service Scotland (LPS).   On the 5th April it was announced that the Government has approved LPS as its first deposit protection service with the scheme set to be up and running by the 2nd July 2012.  As a result landlords will be legally required to submit deposits into such a scheme from November 2012.  Another two services – SafeDeposits Scotland and MyDeposits Scotland - are currently also being considered for approval with the intention that these two services will also be approved and set up by the 2nd July.  

The approval of LPS follows the Tenancy Deposit Schemes (Scotland) Regulations 2011, which came into force in March last year.  These regulations were introduced in order to tackle the recurring problems often faced by many tenants, such as unfairly held deposits and the speed at which deposits were returned to tenants after the tenancy had finished.  A tenancy deposit scheme is a scheme provided by an independent third party for the purposes of protecting deposits until they are due to be repaid.  A landlord who is required to register as a landlord with their local authority and who takes a deposit from their tenant must no longer retain the deposit in a separate interest bearing account themselves.  Instead the landlord under the new regulations must:

  • Pay the deposit to an approved tenancy deposit scheme within a specified timescale;
  • Ensure that the deposit is held by the Scheme throughout the tenancy;
  • Give details about whether the landlord is registered, or has applied to be registered, with the local authority when the deposit is paid over;
  • With a specific timescale the landlord must also provide the tenant with information about:
    • The tenancy
    • The deposit
    • The scheme that will be protecting the deposit
    • The circumstances in which a landlord can make a claim on the deposit at the end of the tenancy, with reference to the terms of the tenancy agreement.

The date in which the landlord or letting agent must submit their tenants’ deposits will depend on the date in which the landlord received the deposit.  From October 2012 all landlords will have thirty working days from receiving the deposit in which to pay the deposit to the landlord’s chosen deposit protection service.  If the deposit has been received prior to 7 March 2011 and the tenancy is renewed after the 12 November 2012 the landlord will also have thirty working days from receiving the deposit to comply with the regulations.   In all other circumstances the date by which the landlord must comply with the rules will depend on when the deposit has been received in relation to when the regulations came into force – i.e. if the deposit is received on or after 7 March 2011 and before the 2 July 2012 then the landlord has until 12 November 2012 in which to hand over the deposit to an approved scheme. 

The scheme will also provide to both landlords and tenants a free and independent dispute resolution service at times when the return of the deposit is disputed.  Any disputes regarding the repayment of all or part of the deposit to the tenant or the landlord will be dealt with by the service provider who act as an independent mediator for both parties until a decision is reached as to how and to whom the deposit should be repaid to.   As a result there will clearly be greater emphasis upon landlords or their agents to provide sufficient evidence to support any deductions they wish to make from the tenants deposit. 

It is crucial that landlords in the private rented sector don’t fall foul of this legislation and take the appropriate steps to ensure that they are prepared for its introduction.  If landlords fail to comply they leave themselves open to legal action by tenants and could face fines up to three times the amount of the original deposit.

Michael Sinclair, Partner

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