History of Disputes

Background to Deposit Schemes 

Tenancy deposit protection was first introduced in April 2007 by the then Labour government to provide a legislative framework around the taking of security deposits from tenants and the holding of these deposits by landlords and letting agents.

In short, the aims of tenancy deposit protection (TDP) were three fold:

• Ensure that the tenant received his/her deposit back at the end of the tenancy if they were due it (by adherence to the terms of the assured shorthold tenancy agreement)

At the end of the tenancy if there was a disagreement or dispute over the return of the deposit to the tenant there would be a mechanism available to both parties to resolve that dispute which a.) did not involve the time and expense of going to court and b.) was free to both the landlord and the tenant.

• Provide transparency to the tenant regarding key information about the deposit, how and where it was protected and how the tenant would be able to access it at the end of the tenancy.

At the time of the introduction of these schemes, information received from the Housing Survey 2004 and reports provided by Shelter and Crisis suggested that up to 20% of deposits were being unfairly withheld by landlords and tenants without good explanation. There was clear anecdotal evidence that landlords saw the deposit as their money and a ‘bonus payment’ for renting out their properties and tenants generally felt that they probably would not see their deposit again at the end of the tenancy.

Following a robust tender/procurement process, the government awarded contracts to three independent contractors:

For Scotland; there are three tenancy deposit scheme providers to choose from:

At the time of launch in April 2007, there were two types of scheme available to landlords and tenants.

  1. Custodial TDP. This type of scheme involved the landlord or his appointed agent handing over the deposit to the custodial scheme. The scheme would hold the deposit in a segregated client money account for the length of the tenancy. Neither the landlord/agent nor the tenant would have access to the deposit until the end of the tenancy at which point both parties would negotiate over the release of deposit.
  2. The operation of the scheme would be funded by the interest earned the deposits held by the scheme subject to a cap on the interest rates achievable in the market. Excess interest earned would be returned to the tenant.
  3. Insurance-Based TDP. In this type of scheme, the landlord/agent would retain possession of the deposit during the period of the tenancy. The deposit would be registered with the scheme and the landlord/agent would pay a fee to the scheme as a contribution towards the operating costs of the scheme. The scheme would take out insurance to cover its liability to return the deposit to the tenant at the end of the tenancy period if he was entitled to it and if the landlord/agent could not or refused to do so.

Both types of scheme are mandated to provide free access to dispute resolution and to provide the systems and processes to manage the data required to assist the landlord/agent to provide the Prescribed Information about the tenancy to the tenant.

There were issues around exactly what was ‘in scope’ i.e. landlords with existing tenants who moved in before 6 April 2007 and whether they would be affected by the legislation.

Under section 32 of the Deregulation Act 2015, all deposits received before 6 April 2007 for tenancies that have since been renewed or become statutory periodic tenancies post 6 April 2007, must be protected under one of the government approved schemes 

The change to the law was in response to the Superstrike vs Rodrigues case which involved a point of law regarding the proper treatment of a deposit paid prior to the 6th April 2007. Although the tenant had moved into the property in January 2007 – before the mandatory tenancy deposit protection had been introduced – the Judge ruled that at the end of the fixed term tenancy in January 2008 a new tenancy commenced on a statutory periodic basis.

Accordingly, the original deposit for the fixed term tenancy was deemed to have become a new deposit in respect of the new tenancy, even though no cash changed hands at that point. What is key is that the money remained unprotected and this went against the landlord in the ruling.