Failing to protect your tenant's deposit correctly is one of the most common — and costly — mistakes landlords make. Here's exactly what you need to do.
Deposit protection is one of the most heavily litigated areas of landlord-tenant law, and the consequences of getting it wrong can be severe. Here's everything you need to know about protecting deposits correctly.
The legal requirement
Any tenancy deposit taken for an Assured Shorthold Tenancy must be protected in a government-approved tenancy deposit scheme within 30 days of receipt. The three approved schemes are the Deposit Protection Service (DPS), mydeposits and the Tenancy Deposit Scheme (TDS).
You must also provide tenants with "Prescribed Information" within 30 days — a formal document explaining which scheme protects their deposit, how to access it, what to do if there's a dispute, and other required information.
Custodial vs insurance-backed schemes
Custodial schemes (offered free of charge) hold the deposit on your behalf for the duration of the tenancy. Insurance-backed schemes allow you to hold the deposit yourself, paying a fee to the scheme for the insurance protection.
What happens if you get it wrong?
Failure to protect a deposit or provide Prescribed Information entitles tenants to seek a court order requiring repayment and a penalty of between 1 and 3 times the deposit amount. Courts take a strict view of these obligations — even minor technical errors with Prescribed Information have resulted in penalties being awarded.
Additionally, landlords who have failed to protect a deposit cannot use the Section 21 no-fault eviction process until the deposit is returned or properly protected.
At the end of the tenancy
Both you and your tenant must agree on any deductions before the deposit is released. Only deductions for actual loss — such as unpaid rent, cleaning beyond fair wear and tear or damage — are permissible. Disputed amounts can be referred to the scheme's adjudication service.
Our management service handles deposit protection on your behalf, ensuring complete compliance with all current requirements.