Guidance Sheet : Tenancy Deposit Protection in Scotland Information for Landlords, Tenants and Letting Agents

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1 Tenancy Deposit Protection in Scotland Information for Landlords, Tenants and Letting Agents 1. GENERAL Which landlords will have to comply with the regulations? The types of tenancy to which these regulations will apply are the same as those to which the landlord registration provisions in the Antisocial Behaviour etc. (Scotland) Act 2004 apply. Therefore, if you are required to register with a local authority, and you take a deposit from your tenant, you must also comply with tenancy deposit regulations. Landlords of the following types of property are not required to register and so will not have to comply with tenancy deposit regulations: Lets to family members Life rents Houses for holiday use Properties used by religious orders and organisations Accommodation with care Houses subject to control orders Agricultural and crofting tenancies Resident landlords Transitory ownership (executors, heritable creditors and insolvency practitioners) The regulations will not apply to tenancies outside Scotland.

2 I am a landlord who lives overseas. Will the regulations apply to me? The regulations will apply if you receive a deposit in connection with a tenancy that is in Scotland and you are not otherwise exempt. What will the regulations mean for me? The regulations require that you must pay deposits to an approved scheme administrator and ensure that the deposit is held by an approved scheme for the duration of the tenancy. You will be asked to provide evidence of registration with the relevant local authority when the deposit is paid over. You must also provide the tenant with specific information about the tenancy, the deposit and the scheme that will be protecting it. The duty to comply with the regulations does not apply if there is no approved tenancy deposit scheme in operation. Why does information about my registration status have to be declared? It is a legal requirement for most landlords to register with the relevant local authority. Approved schemes will collect information about registration. This information will be referred to relevant local authorities to assist in the identification of unregistered landlords. Licensing authorities will be able to take appropriate enforcement action where they think it is necessary. What happens if I use a letting agent? As the person who requires a deposit to be taken, the duties in relation to tenancy deposits rest with you as the landlord. This does not mean that you cannot use a letting agent to act on your behalf to manage a tenancy, as may happen now. If you do use a letting agent, it will be in your interests to satisfy yourself that they are acting in accordance with the regulations, depending on what they are contracted to do. Any sanctions imposed as a result of an application by the tenant to a sheriff for non-compliance with the regulations, would apply to you as the landlord. I am an accredited landlord. Will I be exempt? No. 2. TENANCY DEPOSIT SCHEMES When will tenancy deposit schemes be implemented? The scheme starts on the 2nd of July 2012.

3 How will tenancy deposit schemes work? The tenant will pay the deposit to you or your agent, as now. You will be responsible for ensuring that the deposit is submitted to the scheme administrator, who will safeguard it in a designated account until the deposit falls to be repaid after the end of the tenancy. Who will run the schemes? So far two schemes in Scotland have been approved, they are: RentLocally.co.uk have opted to use Letting Protection Scotland on the basis that they have a good track record in England. How many schemes will there be? This will depend on how many suitable proposals to run tenancy deposit schemes are submitted to Scottish Ministers. The regulations allow for more than one scheme to be approved, as long as all the conditions in the tenancy deposit regulations are met. Will there be a choice of schemes? If more than one proposal to run a tenancy deposit scheme is approved and becomes operational, you will be able to choose which scheme or schemes you submit deposits to. You may participate in more than one scheme at a time, although an individual deposit can only be submitted to one scheme at a time. Who will be able to use the schemes? Every approved scheme must be available to all landlords who are required to comply with tenancy deposit schemes regulations, and any agents acting on behalf of landlords in relation to a tenancy deposit. It will be for individual scheme administrators to decide whether they will accept deposits from landlords who might wish to safeguard deposits with them on a voluntary basis.

4 How will the schemes be paid for? Deposits held by approved schemes will earn interest, which will be used to pay the schemes running costs. Every proposed scheme must be able to demonstrate a robust financial model that would enable the scheme to be implemented and operate without the need for subsidy by the tax payer, even during periods where interest rates are low. It will take some time for income to accrue on the deposits and so potential providers must show that they have sufficient funds to operate the scheme until the income from the deposits is sufficient to meet the running costs. How will I know when a scheme has been introduced? The Scottish Government will work with local authorities and other agencies and organisations to ensure that those affected by the proposed regulations are well informed. Those responsible for operating approved tenancy deposit schemes must also publicise the schemes across Scotland at the point that they are approved; prior to the scheme becoming operational and for some time thereafter. How will schemes be monitored? Every approved scheme will be subject to a performance reporting on a quarterly and annual basis. This regime includes a requirement to report on the financial position of the scheme, including a set of independently audited accounts and statements on the income and expenditure of the scheme. Scottish Ministers are also required to review every approved tenancy deposit scheme from time to time, and if necessary, take steps to secure the revision of the reviewed scheme. How much will it cost me to join the schemes? There will be no charges for landlords, letting agents or tenants to participate in an approved scheme. Will schemes have any control over the amount that I can take as a deposit? No.

5 3. DATE FOR COMPLYING WITH THE REGULATIONS When will I need to comply with the regulations? This will vary, depending on when the deposit was received. Date deposit received Regulation Duty to comply 1 Deposit received prior to 7 March 2011 and tenancy renewed by express agreement or on tacit relocation on or after 2 October 2012 and before 2 April In any other case 2 Deposit received on or after 7 March 2011 and before 2 July Deposit received on or after 2 July 2012 and before 2 October 2012 Regulation 47(a) Regulation 47(b) Within 30 working days of renewal By 15 May 2013 Regulation 48 By 13 November 2012 Regulation 4 By 13 November Deposit received on or after 2 October 2012 Regulation 3 Within 30 working days of the beginning of the tenancy 4. DUTY TO PROVIDE INFORMATION What information do I have to give my tenant(s)? You are responsible for ensuring that information specified in the regulations (Regulation 42 (2)) is provided to the tenant. You will also be required to inform the tenant whether you are registered, or have applied to be registered with the local authority. You may provide the information directly to the tenant, but if you use a letting agent, it will be in your interests to ensure that they meet this requirement. When should I provide information to my tenant(s)? The information must be provided within 30 working days of the beginning of the tenancy (except where the tenancy began before a tenancy deposit scheme is implemented, in which case transitional timescales apply).

6 5. DEPOSITS What is a tenancy deposit? A tenancy deposit is a sum of money which a landlord may require a tenant to pay at the outset of the tenancy, and which will normally be returned to the tenant at the end of the tenancy. The landlord holds the money as security against the tenant not meeting their obligations in connection with a tenancy or occupancy arrangement. In certain circumstances it may be retained by the landlord at the end of the tenancy, for example if it is needed to pay for: damage a tenant may cause to the property cleaning bills if the property has been left in poor condition bills that are left unpaid, for example fuel or telephone bills any unpaid rent. A written guarantee, as often used by deposit guarantee schemes, is not a sum of money and as such is not covered by tenancy deposit regulations. Do I have to take a deposit? No. You are not obliged to take a deposit. If you do, the deposit must be dealt with it in accordance with an approved tenancy deposit scheme. Am I responsible for submitting deposits to a scheme? Yes. As noted in Section 1, the regulations place a duty on landlords to ensure that tenancy deposits are submitted to an approved scheme; to provide information to the tenant, and ensure that deposits are held by an approved scheme throughout the tenancy. If you use a letting agent to manage the tenancy, it will be in your interests to ensure that they meet this requirement. How will the scheme protect deposits? On receipt of a deposit, the scheme administrator will hold the deposit in a designated account, until the deposit is due to be repaid after the end of the tenancy. Scheme administrators must provide adequate protection for deposits, enable individual tenants and deposits to be identified and ensure that money is always available to repay deposits, if required. As part of the process for assessing potential schemes, Scottish Ministers must be satisfied that the proposals relating to the protection and investment of deposits are robust.

7 Will the deposits be safe if I or my letting agent goes out of business? Yes - as long as the deposit has been paid to an approved tenancy deposit scheme administrator. Can deposits be transferred from one scheme to another? Yes. Where there is more than one approved scheme, you can apply for repayment of the deposit in order to transfer it to another scheme. What happens to the deposit if I sell a property part way through the tenancy with the tenant still resident? You should have been submitted the deposit to an approved scheme within 30 working days of the beginning of the tenancy. If the property is sold, the scheme administrator will continue to hold the deposit until it falls to be repaid. Approved schemes will need to ensure that they are able to identify the new landlord. 6. STUDENTS Will providers of university accommodation be exempt? No. What happens where a parent pays the deposit on a student s behalf? It does not matter if a third party pays the deposit. Unless you are exempt from complying with tenancy deposit scheme regulations, the deposit will need to be submitted to an approved scheme. Does a holding deposit (i.e. a deposit that is taken before the tenant and landlord have entered into an agreement in respect of a tenancy for a specific property) have to be protected by a scheme? No. A deposit for the purposes of tenancy deposit regulations is a sum of money held as security against the tenant not meeting their obligations in connection with a tenancy or occupancy arrangement. This is not the case with a holding deposit. However, if you receive a holding deposit for someone who then becomes your tenant, and the holding deposit then becomes the tenancy deposit, you must pay the deposit into an approved scheme. What happens if the property is let to several tenants on one tenancy agreement? The treatment of joint tenants will be determined by the rules of individual scheme providers.

8 7. RETURN OF DEPOSITS How will deposits be returned at the end of a tenancy? You must apply to the scheme for repayment of the deposit after the end of the tenancy, giving details about how much of the deposit should be repaid to the tenant. The scheme administrator will write to the tenant asking them to confirm whether they agree with your application, or whether they wish to dispute the amount. If the tenant agrees, the scheme administrator will repay the deposit accordingly. How long will it take to return the deposit? Where the tenant agrees with your application, the deposit must be repaid within 5 working days. The return of deposits may take longer where the amount is disputed, or you or the tenant cannot be contacted, or do not cooperate. What if I apply for the return of a deposit but the tenant is uncontactable? On receipt of your application, the scheme administrator will write to the tenant to confirm whether they agree, or whether they wish to dispute the amount. If no confirmation is received from the tenant within 30 working days, the scheme administrator will repay any amount claimed by you within 5 working days of the end of the 30 working day period after contacting the tenant. Any amount due to the tenant will be held by the scheme in case it is applied for later. What if I don t apply for the deposit? The tenant may also apply to the scheme for repayment of the deposit.where a tenant does apply for the deposit, the scheme administrator will write to you to notify you of the application and amount applied for. If you agree to the amount applied for by the tenant the scheme administrator will repay the deposit within 5 working days. I you do not agree with the tenant s application, or do not make an alternative application within 30 working days, the full deposit is repaid to the tenant within 5 working days of the end of the 30 day period. What happens to the deposit if the tenant fails to pay the last months rent or the final utility bill? The dispute resolution process can only deal with disputes over withheld deposits. If the landlord wishes to make a claim on any of the deposit, they should specify the amount they wish to claim when applying to the scheme administrator for repayment of the deposit. The scheme administrator will then write to the tenant to notify them of the application and to ask them to confirm whether they agree with the application or whether they dispute the amount.

9 Will interest be returned with the deposit? Interest earned on the deposits paid in to and held by an approved scheme, will be used first and foremost for paying the running costs of that scheme. The regulations do not prevent individual scheme administrators from returning interest if they choose to, as long as the conditions in the tenancy deposit regulations relating to the use of excess income are satisfied. 8. DISPUTES What happens if the tenant disagrees with my application for the return of the deposit? Every approved tenancy deposit scheme will be required to provide access to a dispute resolution service. This means that where a tenant does not agree with the amount of deposit applied for by you at the end of the tenancy, the tenant can ask for the case to be referred to an independent adjudicator. The adjudicator will make a decision about how the deposit should be repaid, based on evidence provided by you and the tenant. The scheme administrator must be satisfied that the tenant has tried to resolve the dispute with you, and that this has failed, before referring a case to dispute resolution. Does the tenant have to use dispute resolution? No. Tenants can still opt to go to court, or use another form of redress to recover their deposit. However, you will be required to cooperate with the service if a request to refer a dispute is raised by the tenant. How is a dispute raised? If the tenant does not agree with your application for the return of the deposit, they must notify the scheme administrator of the amount which they think should be repaid, and request a referral to the adjudicator. The disputed amount will be held in a designated account until the issue is resolved - any undisputed deposit will be returned to the tenant as soon as possible. The scheme administrator will refer the case to dispute resolution. Can a dispute be raised after the tenant has left the property? Yes. The rules of approved tenancy deposit schemes must state the timescale within which a request for a referral to dispute resolution can be made. What happens to the deposit if the tenant chooses to go to court? The tenant has 30 working days to notify the scheme administrator if they want to use dispute resolution service. If the tenant tells the scheme that they want to go to court, the deposit will be released as per your application, which gives details of how much you feel is due to each party. The deposit will be released within 5 working days after the expiry of the 30 working day period.

10 How much will dispute resolution cost me? Use of the dispute resolution service will be free for tenants and landlords. Will I have to provide evidence to support a dispute? Yes. Both you and your tenant will be asked to provide evidence to support your claims on the deposit. The types of evidence that will be accepted are not defined in the regulations and will be determined by scheme administrators. Will the regulations require me to provide an inventory? No. However, it is recognised as good practice to complete an inventory at the outset of the tenancy, and again when the tenancy ends. If the tenant has agreed the inventory at each stage, this reduces the potential for a dispute to arise. Will the adjudicator consider a dispute without an inventory? An inventory may be helpful in supporting a claim on a deposit. If there isn t an inventory the adjudicator may still decide how a deposit should be allocated between tenant and landlord, based on the available evidence. Failure to provide suitable evidence in support of a claim may affect the outcome of the dispute. Will the adjudicator deal with disputes where I need to recover more than the amount of the deposit? No. Tenancy deposit schemes will only deal with the deposit that has been paid by the tenant. You would need to recover additional sums by other means e.g. through the courts. How long does the dispute resolution process take? The adjudicator must decide any dispute within 20 working days of receiving the referral. Within 5 working days of reaching a decision, the adjudicator must write to the scheme administrator, the tenant and landlord, setting out the detail of the decision. What if I need the deposit to pay for repairs? Where a dispute is raised over the amount of deposit applied for by a landlord at the end of the tenancy, the deposit cannot be returned until the dispute is resolved or the tenant and landlord otherwise reach agreement or agree to abandon the adjudication process. Any part of the deposit that isn t disputed must be returned as soon as possible.

11 Can the adjudicator s decision be challenged? Yes. Both parties will have 10 working days from the date the decision is notified, to request a review of that decision. A review can only be accepted if the adjudicator has erred in law, and or fact, for example if the adjudicator has ignored evidence that was provided to support the claim. A review will not be accepted simply on the basis that the tenant or landlord do not like the outcome. A decision of the adjudicator following a review is final. How long does it take to receive the deposit once the adjudication has been made? The deposit must be returned by the scheme administrator within 5 working days of the end of the 10 working days allowed for a request for review of the adjudicator s decision. Where a review is undertaken, the deposit must be returned by the scheme administrator within 5 working days of notification of the review decision. 9. FAILURE TO COMPLY WITH TENANCY DEPOSIT REGULATIONS What happens if the deposit is not submitted to an approved scheme? If a deposit is not paid to an approved scheme within the required timescale, the tenant may apply to the court for sanctions against the landlord. If the sheriff is satisfied that you have failed to comply with the regulations, they must order you to pay the tenant up to three times the amount of the deposit and in addition may order you to submit the deposit to an approved scheme. The sheriff will have discretion to take the individual circumstances of each application into account when deciding what amount of financial penalty should apply. What happens if the tenant is not provided with the required information? The same process applies as for the failure to submit a deposit to an approved scheme. If the sheriff is satisfied that you have failed to comply with the regulations, they must order you to pay the tenant up to three times the amount of the deposit and in addition may order you to provide the information. The sheriff will be able to decide on the amount of the financial penalty that should apply.