This briefing paper explains the duty on private landlords to protect tenants’ deposits and summarises how the schemes operate. The Government is legislating to cap security deposits at six weeks’ rent in England.
Issues with recovering deposits
In June 1998 the National Association of Citizens Advice Bureaux (NACAB) published a report based on CAB clients’ experience of the payment of tenancy deposits. In the light of evidence highlighting the difficulties faced by tenants trying to reclaim their deposits from private landlords, NACAB concluded that the case for reform was ‘overwhelming’ and that the failure to regulate deposits damaged the image and reputation of the private rented sector.
The introduction of mandatory protection
Provisions were added to the Housing Act 2004 to place a duty on ‘the appropriate national authority’ to establish at least one statutory tenancy deposit scheme. Tenancy deposit schemes (TDS) became operational from 6 April 2007 in respect of assured shorthold tenancies created in England and Wales after that date.
Scotland and Northern Ireland have also legislated to make protecting deposits mandatory.
The number of protected deposits
There were 3.7 million deposits, worth an average of £1,088 each, protected in England and Wales at the end of March 2017. In the same period, around 30, 742 dispute adjudications were completed (also in England and Wales).
Amendments to the TDS in England and Wales
The legislation governing mandatory TDS in England and Wales has been modified several times. The Localism Act 2011 amended (with effect from 6 April 2012) sections 213 and 214 of the Housing Act 2004 to resolve issues arising from several court cases. The amendments ensured that landlords who had failed to protect a deposit could continue to serve a section 21 notice to terminate a tenancy if they did eventually protect the deposit. However, the changes made it clearer that late protection of a deposit would be subject to a financial penalty determined by the courts.
The Deregulation Act 2015 tackled further issues arising from case law. The Act clarified that, for those tenancies starting before 6 April 2007 but renewed or rolling into a statutory periodic tenancy after that date, any initial deposits received would need to be protected by a TDS. This Act also provided that a section 21 notice could not be served if a deposit was not protected even if the tenancy (AST or statutory periodic) started before 6 April 2007.
Further attempts to amend the TDS were made as the Housing and Planning Act 2016 progressed through Parliament. None of the proposed amendments were made.
Ongoing issues and capping deposits in England
Critics of the TDS point to the number of non-compliant landlords; the length of time it can take to resolve disputes; and the persistent loopholes and abuses of the schemes.
From The House of Commons Library