Tenancy Deposits and the Housing Act 2004

Position prior to April 2007:

Prior to April 2007 landlords and their agents were free to decide whether to require deposits from their tenants and, whilst the vast majority did require some form of deposit, some did not. The amount of the deposit was normally between four and six weeks rent. Where an agent was managing a property this sum would have been held by him either as agent for the landlord or as stakeholder between the parties.

Professional bodies such as the Royal Institute of Chartered Surveyors (RICS), National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) required their members to hold such monies in a separate client account. Unless the tenancy agreement specified otherwise, there was no requirement to pay to the tenant any interest earned on the deposit or to hold the monies in a client account. Landlords might also hold deposits for their tenants and there were no legal requirements as to how such monies should be held. Unless the agent or landlord was a member of a body that provided dispute resolution for deposits, such disputes ultimately had to be resolved in the County Court.

There was criticism of this lack of regulation from organisations such as Shelter and having tested a trial deposit scheme in 2000-3, the Government concluded that there is no clear evidence to suggest that the actual incidence of tenants losing their deposits is so high as to require legislative intervention. A decision was subsequently made to include legislation for the protection of tenancy deposits, and this was duly enacted within the Housing Act 2004.

Provisions of Housing Act 2004:

The Tenancy Deposit Schemes were introduced in Chapter 4 of the Act, sections 212 – 215 and Schedule 10. These sections were not in the original draft bill but were added during the consideration of the bill in the House of Lords in May 2004 as a result of pressure from backbenchers and others. The House of Commons did not consider these provisions in detail. Much of the provisions for deposit schemes will be contained in the Regulations, which were published in January 2007.

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