Landlords in England and Wales have been required to protect security deposits in a Government-approved scheme since 6 April 2007. 

In both nations, deposit protection is largely the same. Landlords or their agents have to:

1. Protect the deposit within a scheme within 30 days of receipt; and then
2. Issue the prescribed information to any contract-holders, and anyone who has paid towards the deposit, within that same 30 window.
3. Keep the deposit continuously protected within a scheme while the tenancy continues.

At the end of the contract, if there is a dispute then the deposit can then be allocated by the scheme after impartial adjudication. 

However, over the years, private rented legislation in the two nations has diverged significantly and this has led to some important differences that landlords and agents in Wales need to be aware of when managing their tenancy.

This guide is intended to explain how to protect a deposit, as well as the key differences you need to be aware of when managing property in Wales. 

A deposit is money taken by the landlord to cover any of the tenant's liabilities or obligations that arise from the standard occupation contract. If money is being held for this purpose then it is a deposit, and it needs to be protected in a scheme if you have a standard occupation contract.

Your occupation contract must include a term explaining that the money will be held in a Government-approved scheme. It should also include a term setting out how you can make deductions from the deposit.

Can I take something other than money as a deposit?

The deposit cannot be taken in the form of property such as a rolex watch or a car. If you attempt to take a deposit in any form other than money, then you are prevented from serving a Section 173 notice (Form RHW16) in Wales until it is returned.

Am I obligated to take a security deposit?

No, many landlords now choose to forgo a deposit, preferring instead to rely on the deposit alternatives such as Zero Deposits, rent insurance schemes, or simply taking no deposit at all.

However, as most tenancies presume you will take a deposit they will usually contain clauses referring to the deposit. To avoid any issues, landlords should make sure it is clear in their agreement that no deposit has been taken.

How much can I take for a deposit in Wales?

Unlike England, there is no upper limit or cap on the deposit amount in Wales. So you may request any amount of money for a deposit that you wish. 

Can I charge an additional amount for a pet deposit in Wales?

Yes. As there is no upper limit on the amount of deposit that can be taken then you may agree that the contract-holder should pay a higher deposit amount if you want to grant permission for a pet.

If you are agreeing this midway through a contract then you should contact your scheme to see if you need to reprotect or pay anything to the scheme for the change in deposit amount. You should also ensure that you have communicated the change to the tenancy in writing to your contract-holders within 14 days of agreeing the change. 

Are advanced rent payments a deposit?

The Court of Appeal ruled in Johnson v Old that where rent is genuinely taken as rent in advance, then it is not a deposit. 

However, in this case the landlord's argument was strengthened by the fact they had also taken a deposit that was separate from the rent in advance. As a result, landlords are best advised to take a deposit and rent in advance to avoid any potential problems.

Does a holding deposit need to be protected?

You are not required to protect a holding deposit until you have entered into an occupation contract.

However once you do agree the contract, the holding deposit must either be used as part of the first payment of rent or payment towards this deposit. If you have chosen to use the holding deposit as part of the deposit payment, then this must be protected within 30 days of agreeing to enter into the contract. 

Until the contract is agreed you should bear in mind the separate requirements you must follow for holding deposits which is covered here.

To protect a deposit you will first need to choose a Government-approved scheme to provide the protection and decide which type of deposit protection you want to use. 

What deposit protection schemes are available

There are three scheme providers -

• TDS
• mydeposits
• DPS

The different types of deposit protection

Next you will need to decide which type of protection you want to use. All three schemes offer two different options on how to protect the deposit:

• Custodial protection; and
• Insurance-backed protection. 

What is custodial protection and how does it work

Protecting it in a custodial scheme means the scheme holds the money for you. You must transfer the money to the scheme after you receive it and you must apply to release the deposit at the end of the tenancy. There is no up-front charge for using this service.

What is an insurance-backed protection and how does it work? 

Insurance-backed protection is where you, or your agent, hold the money in a bank account and pay the scheme a fee to insure the money.

More detailed information on how these options work and which is the right option for you is available exclusively to NRLA members.

I've chosen a scheme. How do I protect the deposit?

Once you've decided on a scheme and how you will protect it, then within 30 days of receiving the deposit from the tenant you will need to:

1. Create an account with them, or log in to your existing account;
2. Register the deposit. If you choose to protect it in a custodial scheme  you will also need to transfer the entire deposit to them;
3. After this, but still within 30 days of receiving the deposit, you must send the prescribed information to the contract-holders and anyone else who paid towards the deposit.

There are serious penalties if you don't protect a deposit within the time limits so you must ensure you protect the deposit properly and issue all the required information.

The courts must issue penalties of one to three times the deposit amount per tenancy where the landlord or their agent:

• Failed to protect the deposit within 30 days of receipt; or
• Failed to provide the prescribed information within 30 days of receipt.

In addition to this, while you are holding an unprotected, or late protected, deposit then you may not serve a valid Section 173 notice (Form RHW16) until it is returned. You are also barred from serving this notice until you serve the prescribed information on your contract-holders.  

Please note that the financial penalty is checked at the start of each occupation contract. This means that if your tenancy starts as a fixed term occupation contract and then rolls over into a periodic contract, and you don't protect or return the deposit, then the court can issue two separate penalties - one for each contract.