Tenancy deposit schemes

When a deposit is paid to a landlord or letting agency they are required to register the deposit with a tenancy deposit scheme provider. The scheme provider keeps the deposit in a separate bank account until the end of the tenancy.

This only applies to private landlords who are required to register as a landlord with their local authority. So, for example, resident landlords are excluded from the scheme. The tenancy deposit scheme does not apply to registered social landlords or local authorities.

At the end of a tenancy, the landlord lets the scheme provider know if any of the money needs to be held back and the rest is returned to the tenant. If the tenant thinks that their landlord has unfairly withheld all or some of the deposit, they have the option of complaining to ask the scheme provider to make a decision.

The three scheme providers in Scotland are:

• Letting Protection Service Scotland

• My Deposit Scotland

• Safe Deposit Scotland

Any tenant who is offered an alternative to these schemes should proceed with caution. Some landlords or letting agents may offer an insurance-type service that takes a non-refundable fee instead of a deposit. These types of schemes may contain extra costs within the small print and any tenant offered this should read these carefully before agreeing to use such a scheme.

Tenancy deposits must be registered with a tenancy deposit scheme within thirty working days of the tenancy starting. If the tenancy is ended within this thirty working day period, so long as the deposit is returned to the tenant in full, the requirement to register the deposit does not apply. [1]

Where a tenancy ends within 30 days, the deposit is not protected and not returned, a civil proceedings claim can be raised at the Housing and Property Chamber.

There is also provision for payment of a deposit to be made in instalments. The regulations apply to each instalment as they would to payment in full at the start of the tenancy [2]

Landlords must give the scheme provider:

• their contact details

• their tenant's contact details

• details of the tenancy and property to which the deposit relates [3]

Where a relevant landlord has failed to place the deposit into the statutory scheme, the tenant can make an application to the First Tier Tribunal Housing and Property Chamber. This can be done either during the tenancy, or up to three months after the tenancy has ended. [4]

The tribunal can order the landlord to pay the tenant up to three times the amount of the deposit, [5] and to pay the deposit into a scheme as well as comply with the other requirements of the tenancy deposit scheme regulations. [6]

Where the landlord has failed to return an unprotected deposit to the tenant at the end of their tenancy, a separate application can be made to recover this money. The civil proceedings procedure is used, under rule 70 or 111, and this can be made at the same time as an application for compensation.

See the section Tenancy Deposit in Courts and Legal Action for information on how to apply.

Landlord uses a service other than the three statutory schemes

In some cases, landlords or letting agents have offered tenants who cannot afford a full deposit the option of using service that takes a non-refundable fee, to insure the landlord against unpaid rent.

Charging tenants premiums or loans to secure a tenancy is a breach of the Rent Scotland Act [7]. As these schemes are a service, rather than a deposit scheme, they do not breach this legislation. However, it is unlikely to benefit tenants, and they would be much better protected against further costs by using one of the three statutory schemes.

If a tenant is told by letting agent they must use such a scheme to secure the tenancy, rather than offering it as an alternative, this may be a breach of the letting agent code of practice. A complaint could be made under Rule 48 or 49 [8] to claim a non-refunded fee back.

If a landlord is unhappy with the scheme provider they have registered the deposit with, they have the option of transferring the deposit into a different scheme. The scheme provider can either facilitate the transfer, or return the deposit to the landlord so that they can make the transfer themselves. [9] If the deposit is transferred the scheme provider must write to the tenant informing them that the transfer has taken place. [10]

As well as paying the deposit into an approved scheme, landlords must give tenants specific information in relation to the deposit within thirty working days of the deposit being put into a scheme. 

Landlords must provide the following information:

• the amount of the deposit and the date it was received by the landlord

• the date the deposit was paid into the tenancy deposit scheme

• the address of the property to which the deposit relates

• a statement that the landlord is registered with the local authority in which the property is located, or has applied to be registered

• the name and contact details of the tenancy deposit scheme provider to which the deposit was paid, and

• the circumstances in which all, or part of the deposit can be kept at the end of the tenancy, with reference to the tenancy agreement. [11]

Either the landlord or the tenant can apply for the deposit to be returned from the tenancy deposit scheme.

Where a landlord applies for the return of the deposit:

Landlords must apply to have the deposit returned from the scheme as soon as is reasonably practicable after the tenancy has ended. [12] In the application the landlord must state the date which the tenancy ended and the amount of the deposit they think should be:

• returned to the tenant, and

• returned to the landlord. [13]

Once the scheme provider has received the landlord's application they will write to the tenant informing them of the amount the landlord thinks should be returned. If the landlord is making no claim on the deposit the money will be returned in full to the tenant within five working days. [14]

If the landlord is making a claim then the scheme will write to the tenant to advise them how much the landlord is seeking. The tenant must respond to the scheme provider within thirty working days stating whether they agree or disagree with this amount. [15] If the tenant disagrees, they should write to the scheme provider detailing the amount they believe should be returned to them. 

If the tenant does not write to the scheme provider to confirm or dispute the amount within thirty working days, the scheme provider will return an amount of money to the landlord, in line with the landlord's claim, within five working days. Any remaining amount due back to the tenant will be deposited into a designated account. It will still be open to the tenant to apply to have this amount returned to them at a later date. [16]

Where a tenant applies for the return of the deposit:

Where a tenant applies for the return of the deposit first, but the landlord applies within thirty days of the tenant's application, the scheme provider must progress the landlord's application instead of the tenant's application. [17]

In their application tenants must state how much of the deposit, in their opinion, they think should be: [18]

• returned to the tenant, and

• returned to the landlord.

If the tenant's application is progressed the scheme provider will write to the landlord informing them of the amounts the tenant has identified as being returnable to them, and the landlord. [19] They will also require the landlord to get in touch to confirm whether they agree with the amounts specified by the tenant within thirty working days. If the landlord does not confirm or dispute these amounts within this period, the scheme provider will repay the full deposit to the tenant within five working days. [20]

A free-to-access dispute resolution service must be made available by each tenancy deposit scheme to help resolve disputes over the amount of deposit to be paid to each party. It's not compulsory to use the dispute resolution process in every dispute – parties are free to negotiate themselves. However, landlords are required to use dispute resolution if it's requested by the tenant. [21] Disputes will be determined by an independent adjudicator appointed by the scheme provider.

When a tenancy deposit scheme provider refers a dispute

Scheme providers will only refer a dispute to the dispute resolution service where:

• the landlord or the tenant requests the referral (where the landlord makes a referral the tenant must consent to this); and

• the scheme provider is satisfied that attempts have been made to come to an agreement but this has not been successful.

First steps in the dispute resolution process

If there is a dispute between a landlord and tenant over the deposit, the scheme provider will hold onto the deposit until the dispute is resolved. [22] If the landlord and tenant come to an agreement before the dispute reaches the adjudication stage, the scheme provider will repay the agreed amounts to both parties within five working days of receiving confirmation of the agreement. [23]

Where a landlord requests dispute resolution

if the landlord requests dispute resolution it is likely to be in the tenants interest to consent to this. If tenants don't write to the scheme provider, stating that they agree to dispute resolution within thirty working days of being notified of the request, the deposit will be paid in line with the landlord's recommendations after five working days.

The scheme provider will write to the tenant fifteen days after they've been sent the initial notification of the request for dispute resolution, reminding them of the availability of the dispute resolution process, and the consequences of inaction on their part. [24]

What if the dispute resolution process is abandoned?

If the dispute resolution process is abandoned before a decision is made, the scheme provider will make a payment from the scheme within five working days of being notified of this. The particular amount depends on why the dispute resolution process came to an end. [25]

• If the landlord and tenant came to an agreement, then the scheme will pay the agreed amounts to each party within five working days of the notification.

• If dispute resolution came to an end for another reason, the deposit will be paid in line with the landlord's specification within five working days of the notification.

What happens after a decision has been made?

Once the adjudicator has come to a decision the scheme provider will wait for ten working days before they return the deposit. This is in case either the landlord or the tenant requests a review of their decision. If no request is received then the scheme provider will then pay the deposit in line with the adjudicator's decision within five working days. [26]

Either the landlord or the tenant can request a review of the adjudicator's decision. Decisions of the adjudicator can only be reviewed on the grounds that the adjudicator has erred in fact or law, or both. [27] A request must be made within ten working days of each party being notified of the adjudicator's decision. This can only be done once.

If a party requests a review, the adjudicator will write to the other party asking them to put forward their views as to whether the adjudicator has made an error. [28] If the adjudicator decides to reject the applicant's request for review, they must pay the deposit back as soon as is reasonably practicable, but not before the period of ten working days has expired in which another party can challenge the adjudicator's decision. [29]

The adjudicator can either affirm their previous decision, or make an entirely new one. The parties will be notified of the decision within five working days and the scheme provider will pay the deposit in line with the reviewed decision, within five working days of receiving notice of that decision. [30]