In almost every property rental, the landlord will request a deposit from the tenant. This deposit is intended to cover unforeseen costs that may occur in the rental. These costs can include damage to the property or rent arrears.
What is the current law in relation to tenant's deposits?
Section 12 of the Residential Tenancies Act 2004 (the 2004 Act) obliges landlords to return or repay promptly any deposit paid by the tenant to the landlord. This obligation is conditional upon the tenant paying their rent and maintaining the property in accordance with the terms of the Act. The 2004 Act does not specify how or where a landlord should hold a tenant's deposit during the term of the tenancy.
According to research by the Residential Tenancies Board (the RTB) in December 2023, most tenants paid a deposit when first renting their current property. The proportion of tenants that paid a deposit increased from 87% in 2019/2020 to 92% in 2022/2023.
Deposit retention is a significant issue in the private rental sector. In 2024, deposit retention was the second most common reason for an application to the RTB dispute resolution service (the highest was rent arrears and overholding). In Q4 2024, the RTB's dispute resolution service received 419 applications regarding deposit retention. In their quarterly impact report Q4 2024, Threshold noted that 729 renters contacted their offices regarding difficulties getting a deposit back from their landlord.
How would the Protection of Tenants' Deposits Bill 2025 change the law?
The Protection of Tenants' Deposits Bill 2025 (the 2025 Bill) would impose an obligation on landlords to transmit rental deposits to the RTB. The landlord would be obliged to transmit the deposit to the RTB with the application for registration of the tenancy. The RTB would then manage and hold deposits for tenants and landlords.
The 2025 Bill notes that where a tenant does not pay a deposit entering into the agreement for the tenancy or lease, the application for registration would be accompanied by a statement. This statement would confirm that the tenant has not paid a deposit to the landlord and that a deposit is not available to provide for a default in the terms of the tenancy.
Enforcement of the new scheme
The 2025 Bill directs that if landlord does not transmit the deposit to the RTB or furnish the required statement, the RTB can shall serve a notice on the landlord. The notice would state that the landlord is required to transmit the deposit or furnish the notice to the Board within 14 days. Failure to comply is an offence. However, it is a defence for a landlord to show that they took all reasonable steps to comply with the notice.
Tenancy Deposit Scheme (TDS) in England and Wales
By comparison, landlords in England and Wales are obliged by law to place tenants' deposits in a government-approved Tenancy Deposit Scheme (TDS). The aim of the scheme is to ensure that tenants’ deposits are fairly handled by landlords and protected by government backing. There are currently three government-approved deposit protection schemes in England and Wales: Tenancy Deposit Scheme, MyDeposits and the Deposit Protection Service. Each of these schemes offers two types of deposit protection:
- Custodial Scheme: The deposit is held securely by the scheme throughout the tenancy. At the end of the tenancy, the scheme distributes the deposit according to an agreement between the landlord and tenant.
- Insured Scheme: The landlord or letting agent retains the deposit and pays a fee to insure it. This allows the landlord or the letting agent to manage the deposit directly and ensures the tenant’s money remains protected.
The TDS directs that landlords must provide tenants with a TDS certificate within 30 days of receiving a deposit.
The TDS ensures that if the tenant meets the terms of the tenancy agreement, the entire deposit is returned to them. Similarly, it allows the landlord to use the deposit – where appropriate – to cover the cost of any damage to their property caused by problems with tenants or to pay for any rent arrears. The deposit cannot be used to pay for reasonable wear and tear. There are also dispute resolution services to resolve disputes between landlords and tenants.
Conclusions
The aim of the 2025 Bill is to ensure that tenants’ money is properly safeguarded. Given the high volume of complaints to the RTB regarding tenants' deposits, the case for reform is overwhelming. Whilst the proposed system is not as sophisticated as the TDS in England and Wales, it is certainly a step in the right direction. For tenants, a protected deposit provides peace of mind that their money is safe and will be returned fairly at the end of their tenancy. For landlords, the image and reputation of the private rental sector would be greatly improved by the proactive regulation of rental deposits.
For more information, please contact Emer Coyle or your usual contact in Beauchamps.
