From 6 April 2007, all deposits taken by landlords in England and Wales must be protected by a tenancy deposit scheme.  To avoid disputes going to court, each scheme will be supported by an alternative dispute resolution service (ADR); whose aim is to make disputes faster and cheaper to resolve.

Landlords will be able to choose between two types of scheme: a single custodial scheme and two insurance-based schemes.

• The tenant pays the deposit to the landlord;
• The landlord will then pay the deposit into the scheme;
• The landlord must give the tenant information about the scheme being used within 14 days of receiving a deposit;
• At the end of the tenancy, the landlord and tenant must agree on the division of the deposit and inform the scheme. The scheme will then return the deposit, divided as agreed by both parties;
• If a dispute should arise, the scheme holds the deposit until the dispute resolution service or courts decide what is fair;
• The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be used to offer interest to the tenant, or landlord if the tenant isn’t entitled to it.

• The tenant pays the deposit to the landlord;
• The landlord retains the deposit and pays a premium to the insurer – (the difference to the custodial scheme);
• The landlord must give the tenant information about the scheme being used within 14 days of receiving a deposit;
• At the end of the tenancy, the landlord and tenant must agree on the division of the deposit, the landlord will then return all or some of the deposit as agreed by both parties;
• If a dispute should arise, the landlord must pass over the deposit to the scheme for safekeeping until the dispute is resolved.
• If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

In each scheme, the deposit must be returned within 10 days of the landlord and tenant agreeing how the deposit should be divided, or within 10 days following notification of an ADR/court decision.

The Government awarded contracts to three companies to run its tenancy deposit schemes; more information regarding these companies can be found via their websites:

www.depositprotection.com
www.mydeposits.co.uk
www.tds.gb.com