Deposit Protection Schemes and Alternative Dispute Resolution

After the launch of legislation in 2007, landlords have become used to protecting their tenants’ deposits as a matter of course. Landlords have the choice of three main schemes based on custodial and insurance models. The former requires the landlord to physically pay the deposit sum into a third party bank account; the latter requires insurance to be obtained for the amount of the deposit.

Whichever option is taken, the deposit protection scheme has brought added peace of mind to tenants that their deposit is in safe hands throughout the tenancy. For landlords, it has gone some way to reducing the negative stereotype, and ultimately made the process far clearer for all involved.

It is still the case however that disputes over the amount of deposit to be returned still arise between tenants and landlords. Whilst this has always been a feature of the rental market, the alternative dispute resolution services attached to deposit protection schemes have done much to speed up and reduce the expense of dispute claims.

Deposit protection schemes which feature alternative dispute resolution (ADR) provide a free and impartial service to both tenants and landlords and works thusly:

  • Step 1: If resolution cannot be found following discourse between tenant and landlord the ADR will provide advice and will typically ascertain whether the tenant has formally asked for the deposit to be returned (after 10 days of leaving the property). If this is the case, they can move on to the next step.
  • Step 2: At this stage the tenant must formally submit the dispute to the ADR; some services offer this over the internet although post is another option. After submitting the dispute, the tenant has 10 days to gather their evidence. The dispute will then be officially logged.
  • Step 3: The landlord will then be informed of the dispute, and in most cases will be given guidance on the path to resolution. They will also be provided the necessary forms to use that particularly ADR service.
  • Step 4: The landlord must then send the disputed amount for holding during the dispute process in a third party account. At this point they can also choose whether to use the ADR, or take the matter to court instead. The rest of the undisputed deposit should also be returned to the tenant during this stage.
  • Step 5: The landlord then has 20 days (from receipt of the dispute notification letter) to prepare and submit their own evidence.
  • Step 6: An independent adjudicator then takes the evidence from both parties and has 28 days to make a decision.
  • Step 7: Once the decision has been made, the amounts are distributed to tenant and landlord respectively.

ADR services as part of deposit protection schemes have been created in order to make it much easier and cheaper to complete dispute proceedings. There is also evidence to suggest that since their introduction, ADR services have reduced the timescale of disputes, which is a positive for both landlords and tenants.