PROTECTING WITH AN INSURED DEPOSIT PROTECTION SCHEME – HOW DOES IT WORK?

For landlords and letting agents in the UK, one of the two main ways to protect tenant deposits is through an insured deposit protection scheme. The insured option allows landlords and agents to retain control of the deposit while still the deposit is legally protected. But how does it work, and what are the benefits? Here, the TDS NI explains the Insured scheme, its process, and why it could be the right choice for you.

What is an Insured deposit protection scheme?

An insured deposit protection scheme is a government-approved method of protecting tenancy deposits, allowing landlords or letting agents to hold the deposit in their own account. Unlike custodial schemes where the deposit is held by the scheme itself, an insured scheme requires agents or landlords to pay a fee to insure the deposit, while keeping it secure in a separate client or deposit account.

How does an Insured deposit protection scheme work?

Using an insured deposit protection scheme involves a few key steps:

1. Register the deposit

• Once you receive the tenant’s deposit, register it with the insured scheme within 28 days.
• Pay the required insurance fee to the scheme.
• Provide the tenant with the Prescribed Information, detailing where and how their deposit is protected.

2. Hold the deposit securely

• The deposit must be kept in a separate client or deposit account and cannot be used for other expenses.
• Throughout the tenancy, the deposit remains under the landlord or letting agent’s control, while the insurance ensures the tenant’s money is protected.

3. End of tenancy handling deposit returns

• If no deductions are needed, the landlord or agent returns the deposit directly to the tenant without the scheme’s involvement.
• If deductions are required, the landlord must communicate with the tenant and provide evidence.
• If the tenant agrees, the deductions are made and the remaining deposit is returned.

4. Handling deposit disputes

• If the tenant disputes the deductions, the deposit protection scheme steps in.
• The disputed amount must be transferred to the scheme, where an independent adjudicator reviews evidence from both parties.
• Once a decision is made, the scheme distributes the disputed amount accordingly.

For more details about dispute resolution, click here to read the TDS Guide on Understanding Dispute Resolution.

Benefits of using an Insured deposit protection scheme

• Faster deposit returns

Since the landlord or agent holds the deposit, refunds can be processed quickly when there are no disputes.

• More control

Landlords and agents retain the deposit throughout the tenancy, allowing them to manage funds efficiently and handle deductions without waiting for a third-party scheme to release payments.

• Flexible for portfolio landlords and letting agents

Perfect for those managing multiple properties, as it keeps funds accessible while still ensuring legal protection. With TDS, you also have the convenience of using both the Custodial and Insured schemes under one roof, giving you the best of both worlds.

• Legally compliant

Provides legal protection for both landlords and tenants while allowing deposit management flexibility.

• Rewards over resolving disputes

In the TDS Insured scheme, TDS offers reduced costs to agents with low dispute tenancy rations, and for resolving disputes over deductions independently.

What happens if a landlord or agent misuses an Insured scheme?

Because landlords and agents retain the deposit funds, they must handle them responsibly. Failing to follow the rules can lead to serious penalties:

1. Fines up to three times the deposit amount if the deposit is not properly protected.
2. Legal action from tenants, potentially resulting in full deposit repayment even if deductions were valid.
3. Inability to serve notice, affecting your ability to regain possession of the property.

To avoid penalties, landlords and letting agents should always protect deposits within 28 days, issue Prescribed Information, and follow the correct dispute resolution procedures. For more details on deposit protection compliance, visit nidirect.gov.uk

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About TDSNI

The Tenancy Deposit Scheme NI is part of The Dispute Service (TDS), the leading tenancy deposit protection and resolution service provider in the UK making life easier for tens of thousands of agents, landlords, developers, and millions of tenants and homebuyers. TDS is a not-for-profit company with offices in Hemel Hempstead, Glasgow, and Belfast.

For more information visit https://www.tdsnorthernireland.com/home/.