Tenancy Deposits: What Landlords Need to Know
With more people investing in second properties to rent out, it’s vital, especially for non-professional landlords, to understand the legal responsibilities that come with letting a property. One of the most common and costly mistakes landlords make involves tenancy deposits.
What is a Tenancy Deposit?
A tenancy deposit is a one-off payment made by the tenant at the start of a tenancy, separate from the monthly rent. If you choose to take a deposit, you take on specific legal obligations under Section 213 of the Housing Act 2004. Failing to meet these obligations can have serious financial and legal consequences.
The legal requirements
In England and Wales, you must:
- Protect the deposit within 30 days of the tenancy starting by placing it in a government-approved tenancy deposit protection (TDP) scheme. The three authorised schemes are:
– Deposit Protection Service (DPS)
– MyDeposits
– Tenancy Deposit Scheme (TDS) - Provide the tenant with:
– The deposit registration certificate, and
– The prescribed information pack for the scheme used.
This process must be completed within the same 30-day period. Failure to do so can have serious consequences.
Common mistakes
Many landlords make two major errors:
- Failing to protect the deposit within 30 days.
- Failing to provide the required documents to the tenant.
These mistakes can lead to tenancy deposit claims, which we are seeing more frequently.
The consequences
Financial Penalties
If you don’t protect the deposit or issue the required documents, the tenant can claim compensation of 1 to 3 times the deposit amount, in addition to the return of the original deposit.
Example: If the deposit is £1,000 and not protected properly, a court could order you to pay:
- £1,000 (deposit)
- Up to £3,000 (compensation)
That’s up to £4,000 in total—for failing to use a free protection service.
Courts take this obligation seriously. The legislation states that the court must order compensation—it is not discretionary.
A costly legal precedent
The case of Superstrike Ltd v Rodrigues [2013] EWCA Civ 669; [2013] 1 W.L.R. 3848; [2013] H.L.R. 42 added even more risk. In that case, the court ruled that when a fixed-term tenancy ends and rolls over into a statutory periodic tenancy, it’s treated as a new tenancy. If the deposit isn’t properly protected again at that stage, the landlord could face multiple penalties.
Using our earlier example:
- Deposit not protected at the start of a 12-month fixed term = up to £3,000 penalty.
- Deposit still unprotected when tenancy rolls over = up to another £3,000.
- Original deposit to be returned = £1,000.
Total potential liability: £7,000.
Even in the best-case scenario, you’d still pay at least £3,000.
Worse yet, these claims are typically brought under Part 8 of the Civil Procedure Rules, which is not subject to fixed costs. That means you could also face significant legal fees.
Impact on eviction proceedings
If the deposit isn’t protected and the prescribed documents aren’t provided, you cannot serve a valid Section 21 notice to evict a tenant. Although you can correct this by protecting the deposit late and issuing the documents, doing so doesn’t shield you from a claim.
Final thoughts
Protecting a tenant’s deposit is not optional—it’s a legal requirement. It’s quick, free, and avoids costly mistakes that could result in thousands of pounds in penalties and legal fees. If you’re renting out property, make sure you understand and follow the deposit protection rules from day one.
Protect the deposit. Provide the documents. Avoid the claim.
Our property dispute experts help landlords navigate their legal obligations with confidence. Whether you’re new to letting or managing multiple properties, our solicitors can help you stay compliant and avoid costly mistakes. If you need advice on deposit protection or you are facing a claim, contact us on 0330 822 3451 for clear, practical guidance. Alternatively, request a callback at a convenient time.