How Should I Handle the Tenancy Deposit

Handling a tenancy deposit correctly is one of the most critical legal responsibilities for landlords in Wales. Under the law, landlords are required to protect their tenants’ deposits in a government-authorised tenancy deposit protection scheme.

This requirement is in place to ensure that tenants’ money is kept safe, to prevent unfair deductions, and to provide a clear and enforceable process for resolving disputes at the end of a tenancy.

Failure to comply with the rules can result in serious consequences for landlords, including financial penalties and restrictions on regaining possession of the property.

What Is a Tenancy Deposit

A tenancy deposit (often called a security deposit) is money that a tenant pays to the landlord at the start of the tenancy.

It is intended to:

• Cover unpaid rent at the end of the tenancy.
• Pay for damage beyond normal wear and tear.
• Offset breaches of the tenancy agreement.

It is not the landlord’s money to use freely—it is the tenant’s money held in trust until the end of the tenancy, subject to any agreed deductions.

Legal Requirement to Protect the Deposit

Landlords must protect any tenancy deposit taken for an assured shorthold tenancy (which includes most standard occupation contracts in Wales) in a government-authorised deposit protection scheme.

This must be done within 30 days of receiving the deposit.

The 30-day period is strict: it starts from the day the landlord or agent physically receives the money, not from the date the tenancy begins.

Government-Authorised Deposit Protection Schemes

There are three government-authorised tenancy deposit protection schemes available to landlords in Wales and England:

• Deposit Protection Service (DPS)
• MyDeposits
• Tenancy Deposit Scheme (TDS)

These schemes offer two types of protection:

• Custodial scheme: The deposit is held by the scheme at no cost until the end of the tenancy.
• Insurance scheme: The landlord holds the deposit but pays a fee to the scheme to insure it.

Both types ensure the tenant can recover their money fairly at the end of the tenancy if no valid deductions apply.

Prescribed Information

In addition to protecting the deposit, landlords must provide the tenant with prescribed information about the deposit protection within the same 30-day period.

This prescribed information must include the following:

• The address of the rented property.
• The amount of the deposit.
• How the deposit is protected (name of the scheme and its contact details).
• The scheme’s dispute resolution service.
• The landlord’s name and contact details.
• How can the tenant get the deposit back at the end of the tenancy?
• What to do in case of a dispute.

Failure to provide this information on time is a breach of the law.

Why Is Deposit Protection Important

Deposit protection is there to make sure:

• The tenant’s money is safe during the tenancy.
• Tenants get their deposit back promptly and fairly when they move out.
• Any disputes over deductions can be resolved impartially and fairly.
• Landlords follow clear, fair rules about deductions.

It fosters trust between landlords and tenants, helping to prevent abuse.

Consequences of Failing to Protect the Deposit

Failing to protect a deposit correctly within 30 days or failing to serve the prescribed information can have serious consequences for landlords.

Penalties include:

• The tenant can apply to the court for compensation of between one and three times the amount of the deposit.
• The landlord cannot serve a no-fault possession notice (often referred to as Section 21 in England—similar principles apply in Wales under the Renting Homes (Wales) Act 2016) until the deposit is returned or resolved.
• The court may order the landlord to return the deposit in full immediately.

These penalties are designed to ensure landlords take their responsibilities seriously.

Returning the Deposit

At the end of the tenancy, landlords must:

• Return the deposit promptly if there are no valid deductions.
• Agree with the tenant on any deductions for damage, unpaid rent, or other breaches of the lease.
• Provide clear evidence if making deductions (photos, invoices, inspection reports).

If a dispute arises, the tenancy deposit protection scheme’s free dispute resolution service can provide an impartial decision.

Using the Scheme’s Dispute Resolution Service

All government-authorised schemes offer a dispute resolution service.

This service:

• It is free for landlords and tenants to use.
• Provides an impartial decision based on evidence.
• Ensures the tenant’s money is not unfairly withheld.

Landlords should cooperate with this service if disputes arise.

Best Practice for Landlords

Professional landlords should:

• Always protect the deposit in a government-authorised scheme within 30 days.
• Provide the prescribed information within 30 days.
• Keep clear records of protection and prescribed information.
• Use clear, fair written tenancy agreements.
• Conduct thorough check-in and check-out inspections, including taking photographs.
• Provide tenants with clear explanations of any deductions.
• Return the deposit or any undisputed amount promptly.
• Engage in the dispute resolution process if needed.

Deposits and the Renting Homes (Wales) Act 2016

The Renting Homes (Wales) Act 2016 modernised the tenancy law in Wales and replaced traditional assured shorthold tenancies with occupation contracts.

Despite this change, the rules regarding deposit protection remain in full effect.

Occupation contract holders must have their deposits protected in the same way, with the same 30-day deadline and prescribed information requirements.

Communication with Tenants

Good communication helps avoid disputes. Landlords should:

• Explain deposit protection rules to tenants at the start.
• Provide certificates or proof of protection.
• Give tenants copies of inspection reports and inventories.
• Discuss and agree on any deductions fairly.
• Be transparent and professional at all times.

Local Authority Enforcement

Local authorities in Wales can:

• Investigate complaints about unprotected deposits.
• Take enforcement action against non-compliant landlords.
• Support tenants in taking legal action.

Tenants can also go directly to the county court to enforce their rights.

Importance of Protecting Tenants’ Money

Protecting the deposit is not just a legal formality—it demonstrates:

• Professionalism and responsibility.
• Respect for tenants’ rights.
• Commitment to fair dealing.

Failing to protect deposits damages trust, risks costly penalties, and harms a landlord’s reputation.

Staying Informed

Landlords should ensure they:

• Keep up to date with changes in housing law.
• Complete Rent Smart Wales training requirements.
• Use approved tenancy agreements reflecting current law.
• Stay organised with clear records of deposits and communications.

External Useful Links

• Welsh Government Renting Homes Guidance: www.gov.wales/renting-homes
• Rent Smart Wales: www.rentsmart.gov.wales
• Shelter Cymru – Tenant and Landlord Advice: www.sheltercymru.org.uk
• Citizens Advice Wales – Housing Help: www.citizensadvice.org.uk/wales
• Law Wales – Renting Homes Act Overview: law.gov.wales/housing-and-local-services/renting-homes
• Tenancy Deposit Protection Overview: www.gov.uk/tenancy-deposit-protection

FAQs

What is a tenancy deposit?

Money paid by the tenant to cover damage, unpaid rent, or breaches of the tenancy agreement.

How long do I have to protect the deposit?

You must protect it in a government-authorised scheme within 30 days of receiving it.

What happens if I don’t protect the deposit?

You could be ordered to pay the tenant up to three times the deposit amount in compensation and lose your right to serve specific possession notices.

What is prescribed information?

Details you must provide to the tenant about the deposit protection scheme, including contact information and the process for resolving disputes.

Which schemes can I use?

Deposit Protection Service (DPS), MyDeposits, or Tenancy Deposit Scheme (TDS).

Can I make deductions from the deposit?

Yes, but only for valid reasons, such as damage or unpaid rent, and you must provide supporting evidence.

How are disputes resolved?

Through the scheme’s free, impartial dispute resolution service.

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