Article below has been updated May 2016 – All approved schemes now operate an insured and custodial tenancy deposit scheme.

Since the announcement that Guild members and our accredited landlords will be able to obtain a discount for the Deposit Protection Service (DPS) new insured tenancy deposit scheme from 2 April 2013, we’ve had a number of questions as to what this means, in particular for those members who already use the DPS for protecting their deposits.

The first thing to say is “if it ain’t broke, don’t fix it!” If your happy with the free custodial deposit scheme that the DPS offers then that’s cool. There’s no need to change and this custodial scheme will continue to be provided by the DPS after April.

Custodial and Insured – the basics

Tenancy deposit schemes come in two forms, custodial and insured. Below we will summarise the difference between the two.

Custodial Scheme

There is only one custodial scheme which is run by the Deposit Protection Service. Update: as from April 2016, all three schemes now operate a custodial scheme. The custodial schemes are free of charge to use and whenever you wish to protect a deposit, an amount equivalent to the deposit is transferred to the scheme who will hold it for the duration of the tenancy. At the end of the tenancy it’s released according to agreement by the parties or if the landlord and tenant are unable to agree, it’s released after a decision of a court or free dispute resolution which the scheme can provide.

Insured Scheme

At the time of writing, there are two insured schemes namely MyDeposits and Tenancy Deposit Scheme run by the Dispute Service. This latter scheme also has another name (Deposit Guard) but it is the same scheme offering a discounted rate to members of the RLA.

From 2nd April 2013, the Deposit Protection Service (who run the one of the custodial schemes) have launching an insured scheme. I’ve heard there is to be a fourth company from April too but not seen any information about this yet.

Participation in an insured scheme allows the landlord or letting agent to hold the deposit in their own bank account for the duration of the tenancy but if there is a dispute at the end, the disputed amount must be transferred to the scheme (so in that sense it becomes a custodial scheme). Once in dispute, just like the custodial, the deposit may only be returned by agreement of the parties, court order or a decision by an adjudicator under the schemes dispute resolution which the schemes must offer for free. Landlords must pay a premium to the insured scheme to be allowed to hold on to the deposit. If the tenant is entitled to have the deposit repaid but the landlord fails to repay it, the scheme will pay the tenant and seek recovery from the landlord or agent.

It’s important to remember that an insured scheme only protects a tenant so if an agent uses an insured scheme and goes bust, the scheme will not pay any of the deposits to the landlord clients but will pay to the tenants if and when they become entitled to their deposits (assuming they were properly protected by the agent.)

The insured schemes will normally require a further fee whenever a new tenancy is granted including even if its a simple renewal to the same tenants. At the time of writing we don’t know what the DPS will do about renewals.

What do we recommend?

If you’re currently using the DPS free custodial scheme and are happy, there is no need to do anything but keep using it. If you’re using one of the insured schemes, now may be the time to consider protecting any new deposits after April with the DPS. Importantly, Guild of Residential Landlords members will get a discount as will landlords who are accredited through the Private Rented Sector Accreditation Scheme.

The DPS offering is not only a lower protection fee, but there will also be no joining fees or annual renewal fees.

One final note, there will be no way of moving deposits from the DPS custodial scheme into the DPS insured scheme unless the tenant agrees to you unprotecting the deposit and re protecting (not that there should be any need to move). This is a Housing Act 2004 issue and not a scheme rule.

Our article announcing the deposit protection discounted fee for members is available here.

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