Mandatory Deposit scheme
In April 2007 the government made it mandatory for all landlords and agents to keep a deposit taken in from a tenant in one of the tenancy deposit schemes. There are two schemes which landlords and agents have to be a member of; these are the Custodial Scheme or the Insurance Based Scheme. To briefly break these down the custodial scheme is run by a third party and the bond is given other after collection from the tenant. Any disputes that are brought up by either party are then run through the alternative dispute resolution or ADR. The Insurance Based Scheme is where the landlord or agent will pay a fee to the third party but still hold the deposit themselves; again any dispute can be run through the ADR. The process should be seamless to the tenant and no charges are brought to them, and they should be able to get their deposit back within ten days.
Fears of the Tenancy Deposit Scheme allayed
Since the start of the schemes it has been estimated that over half a million tenancy deposits have been protected, which is a value of around £450 million pounds. The take up by landlords and agents has been very high and it is understood that many are aware of the benefits that this brings to them when a dispute does occur. Initially there were fears over the schemes as the information was slow coming forward and there were concerns over the process; however the early signs are that both tenants and agents are benefiting from the new legislation. If you are a landlord then it would be very unwise not to use one of the tenancy deposit schemes, plus if landlords are dispensing of the retaining deposit just to avoid the schemes this is not a wise move either, it would make it near impossible to get money if the property is damaged or needs major cleaning after the tenancy period. However, worse is if a deposit is taken and not held correctly then this breaches the 2004 Housing Act and is a very serious offence. The penalties are high and can amount to three times the deposit amount if the landlord or agent is found guilty of wrong doing.
It appears that since the inception of the schemes the process has worked very smoothly, it has proved to be a success in providing an effective and quick way to clear up disputes in an area that has always been controversial in the rental market. With the two different schemes in place this gives the flexibility for landlords and agents to choose which suites their business and will be most effective for them. If you are a tenant and have not heard of the tenancy deposit schemes then it is advisable to become familiar with them. If your tenancy has already run over the short hold tenancy period and been extended then the property agent does not have to hold your deposit in a scheme, however if you are looking to rent then check with the agent and landlord to make sure they use one of the schemes so you are protected in case of a dispute.