Tenancy Deposits

Background:

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 the Agent either as agent for the landlord or as stakeholder between the parties.

Legislation for the protection of tenancy deposits was enacted on 6^th April 2007 within the Housing Act 2004 (and amended by the Localism Act 2011 and the Deregulation Act 2015). The provisions originally applied to assured shorthold tenancy agreements (section 213) starting on or after 6^th April 2007. They did not apply to assured tenancies or other tenancies such as company lettings excluded from the Housing Act 1988 (see Schedule 1) or pre Housing Act tenancies. Since the introduction of the Renters’ Rights Act 2025, and the abolition of assured shorthold tenancies, the requirements now apply to assured shorthold tenancies which became assured on 1^st May 2026 and assured tenancies that commence on or after 1^st May 2026. The requirements do not apply to existing assured tenancies which commenced prior to 1^st May 2026 or tenancies excluded from the Housing Act 1988.

What is the definition of a tenancy deposit:

A tenancy deposit is defined by Section 212(8) of the Housing Act 2004 as being:

‘…any money intended to be held (by the landlord or otherwise) as security for –

a) the performance of any obligations of the tenant; or

b) the discharge of any liability of his;

arising under or in connection with the tenancy’.

This means that any form of money that is taken at the beginning of a tenancy on the understanding that it will be returned to the tenant at the end of the tenancy needs to be safeguarded, whether it is called a ‘deposit’ or not. The Act only applies where money, either cash or its associated forms, such as a cheque or a banker’s draft, is passed to the landlord or their agent from either the tenant or a third party. Third party guarantees or ‘promises to pay’ are not deposits for the purposes of the Act and therefore may continue to be used.

Guarantees offered by local rent deposit schemes might continue to be offered. However, where a rent deposit scheme provides money by way of a loan of the deposit and pays such money to the landlord, this money must be protected by a tenancy deposit scheme under the Act as actual money has passed to the landlord. At the time of writing there are three companies that run tenancy deposit protection schemes and all three run both a custodial deposit scheme and an insurance-based scheme. These schemes are:

Tenancy Deposit Solutions Limited T/A My Deposits.

Computershare Investor Services plc T/A Deposit Protection Service;

The Dispute Service Limited; and