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How Deposit Schemes Resolve Disputes (Custodial vs Insured)

Posted on by COOK LEGAL SOLICITORS

If you’re a tenant trying to recover a rental deposit or a landlord dealing with end-of-tenancy deductions, understanding how a deposit scheme UK dispute works can save weeks of delay. In England and Wales, the three government-approved tenancy deposit schemes are DPS, TDS, and mydeposits, all of which offer two protection models: custodial and insured.

This guide explains (1) the difference between custodial and insured protection and (2) how schemes typically resolve disputes step-by-step.

1) Custodial vs insured: what’s the difference?

Under GOV.UK guidance, all approved schemes offer two options:

  • Custodial scheme: the scheme holds the deposit for free during the tenancy.
  • Insured scheme: the landlord/agent holds the deposit and pays a fee to insure it.

Quick comparison (what changes in a dispute)

Topic

Custodial scheme

Insured scheme

Who holds the money during tenancy?

Scheme

Landlord/agent

If there’s a dispute, where is the money held?

Already held by the scheme

Landlord/agent must transfer the disputed amount to the scheme to hold until settled

How is it decided?

ADR/adjudication based on evidence

Same ADR/adjudication based on evidence

2) The “golden rule” before any dispute: try to agree on repayment

At the end of the tenancy, the deposit should be returned within 10 days of you both agreeing on how much will be repaid.
If you cannot agree, the deposit remains protected in the scheme until the issue is settled.

Practical takeaway: the fastest outcomes happen when both sides agree on the undisputed amount first, and only dispute what’s genuinely contested.

3) How schemes resolve disputes (step-by-step)

While each scheme has its own portal and forms, the workflow is broadly similar.

Step 1: Trigger the repayment request

Typically, someone must initiate the deposit return process (often via the scheme portal or via the agent).

Some schemes require you to request the deposit back and allow a short period for a response before formally raising a dispute. TDS, for example, states you should request the deposit back and give at least 10 days before raising a dispute (insured route).

Step 2: Decide whether to use ADR (alternative dispute resolution)

GOV.UK explains that the scheme offers a free dispute resolution service; you do not have to use it, but if you do, both parties must agree, and the decision is final.
Citizens Advice similarly describes ADR as free and notes you’ll usually need to start it within 3 months of moving out, and that the decision must be accepted by both sides.

Step 3: Move the money to the right place (custodial vs insured)

This is the main operational difference:

  • Custodial: the scheme already holds the deposit.
  • Insured: if the disputed amount is not agreed upon, the landlord/agent must send the disputed amount to the scheme so it can be held during the dispute.

DPS sets this out clearly in its dispute steps for insured disputes (“the landlord sends the disputed deposit amount to us”).

Step 4: Submit evidence (this decides outcomes)

Your scheme will ask both parties to submit evidence. Shelter explains the scheme looks at evidence from both sides to decide whether the tenant should receive the full deposit back or whether the landlord can keep some.

Crucially, DPS notes the burden of proof: the person claiming deductions must prove the claim is legitimate; the tenant is not obliged to “prove their position” in the same way, but should still submit counter-evidence.

Evidence that typically matters most

  • Tenancy agreement
  • Check-in and check-out inventory reports
  • Dated photos/videos
  • Receipts/invoices for cleaning/repairs
  • Email/text correspondence about the condition and works

Step 5: Adjudication and decision

Schemes use an independent adjudicator who reviews the evidence and issues a decision on how the deposit should be repaid.
Citizens Advice indicates ADR decisions are typically issued within around 6 weeks after evidence is collected (scheme-dependent).

Step 6: Payout

Once the adjudicator decides, the scheme repays the deposit accordingly (for custodial deposits, this is straightforward; for insured deposits, the scheme pays out from the funds transferred for the dispute).

4) What if the landlord refuses ADR (or someone is uncooperative)?

  • GOV.UK notes ADR is optional, but if used, both parties must agree.
  • Citizens Advice states that if the landlord/agent refuses ADR, you can take the matter to court instead.
  • Shelter’s professional guidance also explains that ADR is voluntary, with limited circumstances where consent may be treated as given (for example, if one party is missing/uncooperative).

5) Quick “tenant vs landlord” checklist

For tenants

  • Confirm which scheme holds your deposit (DPS/TDS/mydeposits).
  • Request repayment promptly and keep a written record.
  • If deductions are proposed, demand itemised reasons and evidence.
  • Prepare evidence early and submit it cleanly (one PDF/zip with a contents list).

For landlords/agents

  • Itemise deductions and provide evidence that links to the inventory.
  • Use invoices/receipts (not estimates) where possible.
  • Remember, you typically must prove deductions are reasonable.
  • In insured schemes, be prepared to transfer disputed funds to the scheme.

If you are stuck in a deposit dispute or unsure whether the dispute process is being handled correctly, Cook Legal Solicitors can review your position and documents.

Frequently Asked Questions

In England and Wales, GOV.UK lists DPS, TDS and MyDeposits as the approved schemes.

Custodial means the scheme holds the deposit for free; insured means the landlord/agent holds it and pays a fee to insure it.

The deposit stays protected in the scheme until the issue is settled. In insured schemes, the landlord/agent must transfer the disputed amount to the scheme to hold during the dispute.

GOV.UK states ADR is optional, but if you use it, both parties must agree, and the decision is final.

Time limits vary by scheme. Citizens Advice says you’ll usually have to start ADR within 3 months of moving out.

DPS explains that the person claiming deductions must prove it with evidence; the adjudicator decides based on what is submitted.

Need help or advice?

Contact Cook Legal Solicitors today:

📞 0151 203 3599
🌐 www.cooklegalsolicitors.co.uk
 📧 enquiries@cooklegalsolicitors.co.uk

We act for tenants nationwide. No win, no fee may be available on qualifying housing disrepair cases.

COOK LEGAL SOLICITORS