We’ve noticed a couple of stories in the news this year that should act as cautionary tales to landlords and letting agents on the importance of protecting tenants’ deposit payments. In the most recent story, a firm of letting agents in the west of Scotland was taken to court for failing to protect deposits they received from two of their tenants. Colvin Houston Ltd became the first landlord or letting agent to be prosecuted – in this case by North Ayrshire Council’s Trading Standards team – for the offence, which the council said sets a new legal precedent “establishing criminal liability under Trading Standards legislation”.

North of the border, the Tenancy Deposit Schemes (Scotland) Regulations 2011 dictate that deposits must be registered with one of the three deposit schemes – Letting Protection Scotland, MyDeposits Scotland or Safe Deposits Scotland – within 30 days of the tenancy commencing. Despite the ruling, it has been estimated that the three schemes are only capturing around 40 per cent of all deposits in Scotland. It remains to be seen whether the ruling against Colvin Houston – which saw the company fined £500 – will see a flurry of similar prosecutions around the country, but North Ayrshire Council leader Willie Gibson hailed it as a “real victory for tenants across Scotland”.

The other report that caught our eye a while back related to Russell Baker, a former estate agent and letting agent in South Devon who admitted to fraudulent activities to the tune of over a quarter of a million pounds in total. Baker carried out a variety of frauds – including stealing buyers’ deposits for property purchases, and failing to pass on rent that he had collected from tenants – but he was also guilty of failing to properly protect tenancy deposits that had been paid to his company. According to the Torquay Herald Express, he instead “simply pocketed the money”. Baker is due to be sentenced in September, but in the meantime the court has ordered his assets to be restrained under the Proceeds of Crime Act.

It’s clear that failing to protect tenants’ deposits can have consequences for landlords and letting agents, regardless of whether the failure is driven by deliberate fraudulent activity, or mere oversight. In England and Wales the rules relating to tenancy deposits are set out by the Housing Act 2004, with later amendments introduced under the Localism Act 2011. Under the legislation, landlords and letting agents who take deposits for a short assured tenancy must register the deposit with one of the three government-backed deposit schemes: the Deposit Protection Service (DPS), MyDeposits or the Tenancy Deposit Scheme (TDS).

It’s important to understand your obligations: not only must you protect the deposit within 30 days of receiving it, but within the same time frame you also have to provide the tenant with confirmation and key information including the name and contact details of the deposit protection scheme you’ve used, how to apply to get the deposit back, and details of the scheme’s dispute resolution service. Failure to comply with deposit protection rules can be costly, even without the threat of prosecution by local Trading Standards officers – if you fail to protect a deposit and your tenant decides to take the matter to court, you can be ordered to repay them up to three times the deposit amount