Ladybird Living – Your London Estate Agent

Ladybird Living
Jan 13 2023

Tenancy deposits and deposit schemes

What is a tenancy deposit? 

Property owners can request a deposit from tenants to cover any potential damage or rent arrears. However, property owners are unable to receive compensation for any damages that are considered wear and tear. 

Property owners do not need to take a deposit from their tenants as it is not a legal requirement. 

How much deposit can I take from my tenant? 

According to the Tenant Fees Act (2019), property owners in England (regardless of whether their tenants have pets or not) are capped at taking no more than five weeks’ rent for the tenancy deposit where the annual rent is less than £50,000. 

Each deposit scheme varies and therefore you should seek guidance from the deposit scheme of your choice. The deposit scheme should provide clear guidance on how to calculate the maximum amount you can take from your tenants.  

Why was the Tenancy Deposit Scheme introduced? 

The Tenancy Deposit Scheme or Tenancy Deposit Protection (TDP) was introduced to raise standards in the private rented sector. It ensures that the deposit process is fair. For example, if the tenants has followed the terms of the tenancy agreement, then the deposit can be returned to them. It also benefits property owners as they can use the deposit in the case of any damages or loss of rent caused by the tenant. 

How does the Scheme work? 

There are two types of tenancy deposit protection schemes available – these are insurance-based schemes and custodial schemes.  

Insurance-based schemes 

The tenant pays the deposit to the property owner and then the property owner retains the deposit and pays a premium to the insurer. 

Custodial schemes 

The tenant pays the deposit to the property owner and then they pay the deposit into the scheme. This is often the preferred choice among property owners. 

The deposit must be protected within 30 days of receiving the deposit. 

When do I need to return the deposit to my tenant? 

The first step is to agree on how the deposit will be returned. Once you have agreed, the deposit scheme will return the deposit within 10 days. In case of a dispute, the scheme will hold the deposit until a resolution is reached. You must inform the deposit scheme as soon as possible if there are any disputes. 


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January 2023