This is a government-backed scheme that protects a tenant and the deposit they initially put down when entering into a new tenancy agreement. This amount is decided by the landlord and is typically in proportion to the monthly rent up to a maximum of 5 weeks’ rent (or 6 weeks for annual rent of £50,000+). It is important to note that the deposit remains property of the tenant until such time reimbursement to the landlord is required and agreed upon, no matter where the deposit is held.
There are two versions of the scheme: Custodial and Insured.
Both types of scheme will produce a deposit certificate containing a unique identifier relating to that deposit only. Each deposit, if you let more than one property, will need to be registered separately but the same rules apply to each one. If you use a management company to let your property, they will handle this for you on your behalf.
What is the difference between the two types?
Custodial protection is where the money is paid to the Tenancy Deposit Scheme directly and they hold on to the money until the tenancy comes to an end. The landlord/agent then apply to the TDS to withdraw the deposit. They need evidence that the amount being requested has been agreed with by the tenant. Once the deposit has been paid to the landlord, the balance is then repaid to the tenant.
Insured protection is when the money is held by a party other than the TDS and they insure the amount against misuse by the third party. This could be the landlord, management company or another agent. TDS charge a small fee for insuring the deposit (whereas there is no fee for custodial protection). The third-party must hold the funds in a bank account which is specifically available for holding deposits. If the third-party does misuse the funds, the tenant is able to make a claim against them and request that the additional funds are paid. This tends to go through a tribunal process and could potentially cost both parties large legal fees.