Most rentals in the UK require a deposit protection scheme by law since April 2007, which ensures that disputes over the refund of the deposit are fairly settled. Landlords can use a third party or insurer to refund the deposit to the tenant at the end of their occupancy. Failure to comply with the law can result in the loss of eviction rights and a fine equal to three times the amount of the deposit.
In the United Kingdom (UK), a deposit protection scheme is required by law for most rentals starting after April 6, 2007. A deposit protection scheme is a means by which the landlord and tenant can rest assured that any dispute over the refund of the deposit will be fairly settled. The owner gives the deposit to a third party or uses an insurer, either of which will refund the deposit to the tenant at the end of the tenant’s occupancy.
A deposit protection scheme could take any of the forms mentioned above. In the first, the deposit is given to a third party who keeps the money in custody until the end of the lease. The second option is for the landlord to pay an insurance premium to protect the rental deposit. In the first case, the deposit protection service invests the funds and retains part of the income as compensation for its efforts.
The law applies to what is known as a secured lease. This is the standard form of rental agreement in the UK and is similar to a residential lease in the US. Deposit protection schemes were instituted to ensure that landlords and letting agents treat tenants fairly and to provide a means of arbitration should a dispute arise over whether a tenant could recover the deposit. Accepted reasons for withholding a deposit include back rent due, failure to notify, failure to vacate or return keys upon eviction, and damage beyond reasonable wear and tear to the rental unit.
There are a few exceptions to the law, including the presence of a resident owner, property being used as a holiday or secondary home, annual rent in excess of £100,000 British Pounds Sterling (GBP), or a tenant who is a corporate or commercial entity. For leases commencing before April 2007, the letting agent or landlord is not required to use a deposit protection scheme, but is encouraged to do so when renewing the lease. The landlord has 14 days from receipt of the deposit to choose a deposit protection service and notify the tenant.
A survey by a leading deposit protection service in 2008 revealed that 62 per cent of landlords openly admitted that they did not use a deposit protection scheme, despite the legal requirement. Under the law, landlords face the loss of their eviction rights and a fine equal to three times the amount of the deposit. Tenants should be aware that their deposits may be at risk if they are not protected by an escrow or insurance service.
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