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Where is Your Deposit Money?


As a landlord, you know how important it is to collect and hold deposit money in case of damage caused by tenants. Equally, it is vital to protect that deposit in one of the recognised deposit protection schemes of TDS, DPS or MyDeposits. The schemes provide both the landlord and the tenant an arbitration service if there are disputes on how the money is dispersed at the end of a tenancy.

There are two types of schemes available the “Insurance” or the “Custodial”. The basic difference is that the Insurance scheme means that the agent or the landlord holds the money in their bank account whereas the Custodial scheme the money is transferred to the deposit protection scheme’s bank account. At Orchard K Lettings we use the custodial scheme with MyDeposits so you always know where your deposit money is.

So as a landlord how to you decide the best option? The law says that the landlord is responsible for the deposit money even if your agent collects it, registers it in a deposit protection scheme and holds the money in their bank account. So what happens if your agent goes out of business or absconds with the deposit money or refuses to return the money?

If your agent has Client Money Protect (CMP) and has set it up correctly then this should provide a means of getting the deposit money back eventually. If the CMP has not been set up correctly then you have to rely on the deposit protection scheme. The deposit protection provider will start a deposit dispute and eventually return the deposit money to the tenants.

But beware! The insurance scheme was set up to arbitrate in deposit disputes not to insure the money against theft by an agent. If money is not returned to tenants and tenants make a claim under the insurance scheme the insurer has the right of subrogation. Even though the landlord has never seen a penny of the deposit money the landlord is responsible and therefore likely to be pursued through the courts by the insurer to recover the deposit money.

Where an agent has gone out of business or has stolen deposit money and disappeared with it, the landlord could end up attempting to pursue the agent through the courts which could prove both costly and difficult if agent’s limited company has been closed down or is bankrupt.

As landlord you should know where the deposit money is and how you can get it back if the worst happens.


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