What are a landlord's legal obligations to protect tenant deposits?

If you take a deposit from a tenant under an assured shorthold tenancy (AST) in England or Wales, you are legally required to protect it using a government-approved tenancy deposit protection (TDP) scheme. This must be done within 30 calendar days of receiving the deposit, regardless of the amount or length of the tenancy.

There are two types of TDP schemes:

• Custodial schemes: the scheme provider holds the deposit for the duration of the tenancy. It is free to use, and the funds are returned at the end of the tenancy once both parties agree on deductions (if any), or through the scheme’s dispute resolution service.
• Insurance-based schemes: you retain the deposit and pay a fee to insure it. The scheme protects the tenant’s money by guaranteeing its repayment if you fail to return it appropriately.

The government-approved TDP scheme providers in England and Wales are:

• Deposit Protection Service (DPS): offers both custodial and insurance-based options.
• Tenancy Deposit Scheme (TDS): also provides custodial and insurance-based protection.
• Mydeposits: offers both scheme types and is operated in partnership with the National Residential Landlords Association (NRLA).

In addition to protecting the deposit, you must provide the tenant with prescribed information in writing within the same 30-day timeframe. This includes:

• The address of the rented property.
• The amount of the deposit taken.
• The name and contact details of the TDP scheme used.
• How the deposit is protected.
• Details on how to apply for the deposit’s return.
• The procedure for handling disputes.

What are the penalties landlords could face if they fail to protect deposits?

If you fail to comply with the legal requirements for protecting a tenant’s deposit under one of the government-approved TDP schemes in England and Wales, the court may order you to pay the tenant financial compensation. This penalty can be up to three times the amount of the original deposit. The sanction is not limited to a one-time occurrence - it applies to each individual breach of the deposit protection rules, and for each tenancy agreement affected. For instance, if you neglect to protect the deposit at the outset of the tenancy, fail to do so again after a renewal or change in terms or omit to serve the prescribed information as required, the tenant may be entitled to separate compensation awards for each individual breach.

You will also be required to pay the court fee should their case win. In addition to financial penalties, you will be unable to serve a valid Section 21 notice to regain possession of the property until the deposit has been properly protected and the prescribed information has been provided.

This duty to protect the deposit properly and provide the relevant information does not end when the tenancy ends. Even after the tenant has moved out and the tenancy has formally concluded, you can still be taken to court for failing to comply with your deposit protection obligations. Tenants have up to six years from the date of the breach to bring a claim. The fact that the deposit has already been returned or that the tenancy has ended does not prevent the tenant from pursuing compensation.

If the tenancy becomes a statutory periodic tenancy with a rolling monthly contract, you do not need to protect the deposit again, as long as it has already been protected correctly under an authorised scheme during the fixed term.

What can you do if you haven't correctly protected a tenant's deposit?

If you realise that you haven’t protected a tenant’s deposit in an authorised scheme within the required 30-day period, it’s still possible to take corrective steps - though you may still be liable for a penalty and to pay compensation to your tenant. You should immediately protect the deposit using one of the government-approved TDP schemes and serve the prescribed information to the tenant in writing as soon as possible.

While this won’t prevent a tenant from making a claim, taking action promptly may help mitigate the outcome if the case reaches court. If you wish to regain possession of the property, you will not be able to serve a valid Section 21 notice until the unprotected deposit is fully protected and the tenant has received the correct information. In some cases, you may need to return the deposit in full to proceed with possession proceedings.

If you choose to return the deposit, you may also need to demonstrate that this has been done. This means providing proof that the full amount has been repaid to the tenant, such as a dated bank transfer, written acknowledgement from the tenant or other verifiable evidence such as a bank statement. Without clear proof that the deposit has been returned in full, the court may still regard the Section 21 notice as invalid and refuse your application for possession.

If you’re unsure how to resolve a deposit protection issue, you may want to seek legal advice or contact a specialist landlord support service such as AST Assistance.

How AST Assistance can help

AST Assistance’s deposit management services are designed to support landlords at every stage of a tenancy. We provide practical, straightforward advice on how to protect deposits correctly, meet legal obligations and avoid costly disputes.

We’ve helped countless landlords understand how to handle their tenants’ deposits effectively. Our expert guidance is aimed at making your role as a landlord more manageable and legally compliant. Whether you're starting a new tenancy or dealing with an oversight, we can guide you through what needs to be done.

We don’t just explain the rules - we help you apply them. With extensive knowledge of property and tenancy law, we’ve built a reliable process for assisting landlords with deposit protection, providing peace of mind and a clear understanding of your duties. You’ll have access to advice that is relevant, up-to-date and tailored to your situation.

If you’re unsure how to handle a tenant’s deposit or want to check that you're meeting all legal requirements, AST Assistance is here to help. We provide one-to-one support and advice suited to your specific circumstances, giving you the confidence to manage your tenancies correctly. Get in touch by calling 01706 619954 or by filling in our online contact form.