A compulsory scheme to safeguard millions of pounds in deposits paid by tenants renting properties in Scotland has been approved by Housing Minister Keith Brown.

Annually, tenancy deposits amount to over £74 million in the majority of the 273,000 households that make up the private rented sector in Scotland. It is estimated that up to 11,000 tenants have £3.6 million of their deposits wrongly withheld each year.

The first tenancy deposit scheme to be approved is the Letting Protection Service Scotland.

The scheme also aims to protect the reputation of the majority of private rented sector landlords who act professionally and responsibly.

Once in place landlords or their agents must pay deposits to an approved scheme and provide key information about the tenancy, the deposit, and the scheme which is protecting it, to the tenant.

The scheme will be free for landlords and letting agents to participate in and will provide access to a free and independent dispute resolution service, where agreement over the return of a deposit cannot be agreed by the tenant and landlord.

Two further schemes are being considered with the intention of starting all three schemes, which will operate across Scotland from July 2, 2012. In order to provide landlords time to prepare, the legal requirements to submit deposits into a scheme will come into effect from November this year.

Keith Brown said: "Up to 11,000 tenants annually have £3.6 million of their deposits wrongly withheld, which is why this Government is taking action to ensure tenants receive a fair deal.

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"It is important to stress that the majority of landlords act responsibly. This scheme is aimed at those landlords who continue to tarnish the image of the private rented sector.

"The new regulations that allow the scheme to operate are also deliberately streamlined with the emphasis on creating a cost effective approach to safeguarding tenancy deposits."

Kevin Firth, Director of The LPS Scotland commented: "With 5 years of custodial deposit protection experience under our belts, we are delighted to be approved by the Scottish Government to operate a scheme in Scotland. I encourage landlords and tenants to make sure that they understand the legislation and take appropriate action to ensure they are covered.

"It will be compulsory for landlords and letting agents in Scotland to protect their deposits with a Government approved scheme as soon as the legislation launches. It is crucial that those in the private rented sector don’t fall foul of this legislation and take the appropriate steps to ensure that they are prepared for its introduction."

Graeme Brown, Director of Shelter Scotland, said: "Each year millions of pounds from deposits are unfairly withheld by landlords and agents in Scotland, causing hardship to tenants and the very real threat of homelessness due to a lack of funds to secure their next property.

"At the same time too many landlords are uncertain about the grounds on which they can legitimately withhold a deposit. The introduction of a compulsory scheme to safeguard deposits is a step in the right direction towards protecting tenants, landlords and agents.

"Against a backdrop of increasing financial hardship and a growing private rented sector we hope the tenancy deposit scheme achieves a transparent and fair system for all."

Sue Hopson, Brand Standards Director at Martin & Co commented: "I am extremely pleased that the Scottish Government has chosen to back a single type of scheme being custodial. In the eyes of the consumer the rules will be so much easier to understand as every agent and Landlord will be following the same rules, processes and timescales via a transparent custodial method.

"I am sure that the Landlords and Tenants in Scotland will find the scheme as beneficial and as easy to work as we have. Hopefully due to the existing legislation in England and Wales and a more prominent consultation period in Scotland the introduction of Tenancy Deposit Protection will be welcomed by Scotland and not come into fruition quite so quickly as it did for England and Wales 5 years ago.

"There will be a lead in time for educating Landlords, Tenants and Agents with a generous period of time before all deposits need to be protected."

(GK)