The Tenancy Deposit Scheme (TDS) is set to change

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The Tenancy Deposit Scheme was first introduced in April 2007, where residential landlords holding an assured shorthold tenancy with a rental income of £25,000 were required by law to hold their tenants’ deposits in an authorised scheme for the first time. The scheme was introduced to protect deposit monies and to ensure that residential landlords were held fully accountable for the deposits they took from tenants at the start of the tenancy.

Now 3 years on, the scheme has been opened up to a wider proportion of residential landlords as the rental income threshold is raised from £25,000 to £100,000. The changes will not come into force until October this year but when they do, any residential landlords who earn a rental income of £100,000 or under will need to ensure that their tenants’ deposits are placed in one of the three authorised schemes.

The new threshold will apply to existing tenancies where the deposits were taken after 6 April 2007, not just those created after October 2010 when the laws come into force.

Landlords holding an assured shorthold tenancy to which the legislation applies are required to register the deposit taken from the tenant with one of the three statutory protection schemes within 14 days of receiving the deposit and provide prescribed information to the tenant.

Any landlord that fails to comply with the tenancy deposit legislation may face a claim in the County Court from a tenant requiring that the deposit is either registered with a recognised scheme or returned in full in addition to a claim for statutory compensation of 3 times the amount of the deposit, which the Court must award. Furthermore, if the landlord wishes to serve a notice of possession against the tenant under Section 21 of the Housing Act 1988, they would not be able to do so if the deposit is unregistered.

The new incarnation of the scheme could spell bad news for landlords if they aren’t squeaky clean and don’t have their house in order. Where a landlord has to repay up to four times the amount of the deposit, even their small deposits will add up to a significant claim. Large deposits are often paid in connection with high rent tenancies and when these tenancies become subject to the new legislation there is a danger that many claims by tenants will fall outside of the small claims track and landlords may be faced with additional claims for costs.

Many landlords who have not complied with the scheme could be ordered to pay the tenant’s legal costs as well as his own in addition to the statutory compensation so come October, it really will pay for landlords to ensure that they are ready for the scheme to be implemented and are able to comply with it fully.

Landlords in the residential sector who already hold contractual tenancies with a rental income between £25,000 and £100,000 should act now to ensure that any deposits they hold are registered with a recognised scheme prior to 1st October, or they may be faced with some sizeable claims by tenants this winter.

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