The tenancy deposit scheme regime, compulsory since April 2007, requires all deposits paid under assured shorthold tenancies (ASTs) to be held under an authorised scheme. This was designed with the protection of tenants in mind but, as a result, can cause issues for landlords, generally in situations that were not envisaged when the legislation was drafted.

There are two key steps that a landlord must take within 30 days of receipt of the deposit to ensure that a deposit is correctly held:
(1) The landlord must protect the deposit by registering it with an authorised scheme. The scheme may be custodial (scheme holds the deposit) or insurance backed (landlord or agent holds the deposit).

(2) The landlord must provide the tenant, and any relevant third parties, with "prescribed information" relating to the deposit and the scheme.  

A landlord that does not comply with either requirement may be required to repay the deposit (together with a penalty of between one and three times the deposit sum) and will not be able to serve a valid notice under s.21 of the Housing Act 1988 to recover possession of the property. The penalties will apply even where the tenancy has come to an end or where the deposit has been protected but outside of the 30-day period.