I regularly see a concerning number of landlords still question whether a tenants deposit must be protected.
The answer is unequivocally yes.
Since 2007, it has been a legal requirement to protect a tenants deposit in one of three government-approved schemes:
Tenancy Deposit Scheme (TDS)
Deposit Protection Service (DPS)
MyDeposits
Deposit Protection Rules and Deadlines
A landlord must protect a tenants deposit within 30 days of receiving it, not from the tenancy start date. Additionally, prescribed information (PI) must be issued within the same 30-day timeframe. PI informs the tenant where their deposit is held and how it will be managed.
Importantly, PI cannot be issued before the deposit has been protected as confirmed in Siddeeq v Alaian (2024).
Many Assured Shorthold Tenancy (AST) agreement have PI embedded into them, landlords mistakenly believe giving this to the tenant when they sign the AST before the depoist is protected is adequate, but it isn’t as it does not comply with Paragraph 2(1)(g) of the Prescribed Information Order and Section 213(6) of the Housing Act 2004.
To remain legally compliant, PI must always be issued after the deposit has been protected.
Deposit Protection Options: Custodial vs. Insured
Each deposit protection scheme offers two options:
1. Custodial Scheme: The landlord transfers the deposit to the scheme, which holds it for free. This option provides greater legal protection, especially when the tenancy is renewed or becomes periodic.
2. Insured Scheme: The landlord retains the deposit while paying a fee for the scheme to insure its value. However, protection under this model ends when the fixed term expires, unless the landlord manually updates the details in the scheme portal.
Consequences of Failing to Protect a Deposit
Failing to comply with deposit protection rules can have serious repercussions:
1. Inability to Serve a Section 21 Notice: A landlord cannot issue a Section 21 eviction notice unless they first return the deposit to the tenant in full.
2. Financial Penalties of Up to Three Times the Deposit Per Tenancy: Courts can impose a penalty of up to three times the deposit value for each tenancy.
If a landlord repeatedly fails to protect a deposit when renewing an AST (e.g., every 12 months), penalties apply separately to each renewal.
Some landlords have been liable for penalties up to 12 times the deposit amount after failing to protect deposits over multiple six-month AST renewals.
Statutory Periodic Tenancies: A Common Pitfall
When a fixed-term tenancy expires, it automatically becomes periodic. There are two types:
Contractual Periodic Tenancy: Arises if the tenancy agreement includes a continuation clause. Deposit protection remains intact if custodial protection has been used. If insured then deposit will need updating to maintain protection
Statutory Periodic Tenancy: Occurs if the agreement is silent on continuation. Legally, this creates a new tenancy, Superstrike v Rodrigues, requiring the deposit to be re-protected. Failure to do so can result in additional penalties
A tenant has up to six years to bring a claim for non-protection.
Debunking Misconceptions
None of the three government-backed schemes are scams, at risk of collapse, or capable of losing deposits.
The Renters Reform Bill will not remove deposit protection requirements.
Instead, failure to protect a deposit will prevent landlords from serving a Section 8 eviction notice, in addition to invalidating a Section 21 notice.
For landlords, compliance with deposit protection rules is essential to avoid legal and financial risks. Properly protecting deposits not only meets legal requirements but also provides security for both landlords and tenants throughout the tenancy.
