When a landlord or letting agent in England and Wales takes a deposit from a tenant entering into an assured shorthold tenancy (AST – the default type of agreement between tenants and landlords) that deposit must be protected in a government-authorised tenancy deposit scheme designed to make sure deposits are held safely and their return or otherwise dealt with fairly to both landlord and tenant.

There are two types of deposit protection schemes available for landlords and letting agents: insurance-based schemes and custodial schemes.

The first requires payment of a fee to the authorised scheme organiser to effectively insure the sum involved  (although the landlord or agent retains the actual deposit) – the amount of fee varies over time, between schemes, according to the size of the deposit, the number of deposits taken, and whether or not the landlord is a member of a landlords association; but taking the My Deposit  example (see below) at time of writing (June 2010) there was a  £57.50 joining fee plus a fee for each deposit over £300 of £29.36.

The second type of deposit protection scheme (the custodial scheme) is free to use but requires that the deposit be handed over to the scheme for safe keeping. All schemes provide a free dispute resolution service – an important element since the requirement for deposit protection was introduced after claims that some tenants were having the return of their deposits unfairly withheld.

Landlords can choose to use whichever scheme suits them best. But no matter what, they must, within 14 days of accepting a deposit, both protect the deposit and provide the tenant with details of how this has been achieved. That information must include the name and contact details of the scheme used, the landlord or agent’s contact details, how to apply for release of the deposit, an explanation of the purpose of the deposit, and what the tenant should do if there is a dispute.

The three authorised schemes are:
The Deposit Protection Service (www.depositprotection.com, telephone 0844 47 27 000). This is the only custodial deposit protection scheme. It is free to use and open to all landlords and letting agents. Landlords can register online while the scheme provides a template for the information to be provided to tenants.
My Deposits, run by Tenancy Deposit Solutions Ltd (www.mydeposits.co.uk, telephone 0844 980 02 90). They are an insurance-backed scheme jointly owned by the National Landlords Association and Hamilton Fraser Insurance.
TDS Limited, which stands for both Tenancy Deposit Scheme and The Dispute Service – the same organisation, (www.thedisputeservice.co.uk, telephone 0845 226 7837) is an insurance-backed scheme. Landlords can join online and access a range of related forms and documents.

It is important that landlords comply with the requirement to protect deposits since if they do not they can be ordered to repay the tenant three times the amount of the deposit.

For the leaflet ‘Letting? Are you protecting your tenant’s deposit?’ go to www.direct.gov.uk.

In September 2009, Scottish Minister for Housing and Communities, Alex Neil, announced that a national scheme to safeguard rent deposits would also be introduced in Scotland. Draft regulations were promised for 2010.