Do I have to Protect a Deposit and Why?

Most landlords today are aware that you can’t just put tenants deposits into your own back account, even if you do intend to pay it back in full at the end of the tenancy. Tenants have also become more aware of their right to have the deposit protected. The reality of today is that if you are a landlord and you let out your property privately, you must protect the deposit in one of the governments approved deposit schemes.

Where can I Protect a Deposit? There are three schemes to chose from, the Deposit Protection Service (DPS), MyDeposits and the Tenancy Deposit Service (TDS). Both MyDeposits and the TDS are insurance based schemes whereby the landlord takes out a form of insurance that allows the landlord to hold the money in their account. The DPS is a custodial scheme whereby landlord sends the money to the DPS to hold until the end of tenancy.

In all three off the schemes, the principles of dealing with disputes are similar. The goal is always to avoid the expensive traditional route of court proceedings. Instead the schemes provide Alternative Dispute Resolution. ADR’s are where the case and money is given to an independent adjudicator who will make a binding decision.

What if I don’t protect a deposit? In accordance with the Housing Act, you must protect the deposit, the penalties are severe for non compliance. The tenant can be rewarded three times the amount of the deposit if it has not been protected within 14 days. If you have not protected a deposit, you will also have difficulty evicting a tenant, as you will not be able to serve a section 21 Notice on them.

What if I don’t take a deposit? Is it ok to ask for two months rent in advance instead of taking a deposit? The simple answer is that there is no legal reason why you can’t do this, however, this extra month must be used as a month in advance and not for any damages or rent arrears.