Is Tenancy Deposit Insurance Worthless?

When a tenant pays a deposit to a landlord or letting agent, the money must by law be “protected” against non-return at the end of the tenancy by one of two schemes –one custodial, and one insurance–based. Letting agencies and landlords choose which they prefer.

The custodial scheme is government-operated and free of charge. Funds are fully protected in a dedicated independent bank account at Lloyds. However, the alternative that many landlords and letting agents prefer is to lodge funds in the landlord’s or letting agent’s own bank account (or correctly their client account) with an insurance certificate issued to the tenant by either the Tenancy Deposit Scheme (TDS) or Tenancy Deposit Solutions Ltd (TDSL).

However, don’t be fooled! Whilst landlords are legally required to provide this insurance where a deposit is not held custodially, the level of cover provided is not what a tenant might expect. The insurance only covers loss where the landlord or agent has acted unlawfully or fraudulently. It does not include the landlord or agent going out of business – with many such examples already on record.

It is therefore critical that landlords and tenants alike use a letting agency that is fully accredited. We are passionate about protecting the public and are full members of, Propertymark – Association of Residential Letting Agents, and the Property Redress Service (formerly the PRS), subscribing fully to all the relevant codes of conduct of these organisations.

It is at times like these when tenants and landlords alike should look carefully at their choice of letting agent. Too many apparent letting agents are simply bolt-on letting departments to estate agency businesses and they do not necessarily have all the protections in place that we would expect to see in a dedicated and professional property management company.

Posted By Teresa Henson

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