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POSTED 12 November 2018 Lettings

Tenancy Deposit Scheme Explained

If you rent a property, the likelihood is that you will have to put down a deposit. This money is to protect the landlord’s interests in the event that damage occurs to the property while it is occupied by a tenant.

Previously, a tenant simply had to trust their landlord to return their deposit to them; however, since 6th April 2007 the money is protected by the Tenancy Deposit Scheme.

What is the Tenancy Deposit Scheme?

There are two main objectives of the Tenancy Deposit Scheme:

  • Firstly, to protect a tenant’s deposit and ensure that the money is returned in full at the end of a lease, unless a landlord has a legitimate reason not to.
  • And secondly, to provide an alternative method to the courts in the event of a dispute.

A landlord’s responsibilities

If a tenancy started after 6th April 2007, a landlord must place any deposit in a government approved tenancy deposit scheme (more on these below) within 30 days of receiving the money.

They must also provide their tenant with certain prescribed information. This includes details of the scheme being used to hold the money and information about the tenancy.

Failure to fulfil one or both of these requirements can result in a landlord having to pay back the deposit in full, plus an additional sum of up to three times of the deposit.

Available deposit schemes

In England and Wales, there are three government approved schemes available, it’s up to a landlord which one they choose. The schemes are:

Within these three approved services, there are two types of deposit scheme, custodial and insurance.

  • Custodial: The deposit is held by the scheme operator in a bank account that cannot be accessed by landlord or tenant.
  • Insurance: The landlord holds on to the funds but must pay insurance on it to protect against it being kept unfairly. In the event of a dispute, the insurer will settle with the tenant and pursue the landlord for the money. It’s important to note that insurance schemes can only be used by landlords that are members of approved professional bodies, such as a trade association.

At the end of a tenancy

Once the tenancy is up, a landlord has to tell their chosen deposit scheme how much of the deposit they intend to return to the tenant. They must also state any reason for withholding all or part of the deposit, such as to cover the cost of repairs. The tenant will be informed of the outcome within 10 days, including details of any reason the landlord has to withhold funds.

In the event that the deposit is paid back in full, or the tenant agrees with the landlord’s decision to withhold all or part of the deposit, the money is usually paid directly into their bank account. However, in the event that a tenant does not agree with the decision, the funds will be frozen until a resolution is found.

Resolving a dispute

If there is a dispute, the matter will be handled by the deposit scheme operator, who will provide a dispute resolution service. The decision will be made after hearing both sides of the argument and is binding, unless either party wants to take the matter to court.