The government has voted to legally safeguard tenants' deposits as part of the Housing Bill to put an end to the £65 million wrongfully withheld by landlords every year.
BY Samantha Washington
BBC Radio 4's Money Box
The scheme will be welcome news to the two million people currently living in rented property.
For many tenants getting their deposit back has proved difficult
Under the new plans, when there is a dispute, the landlord or agent will be legally required to send the deposit in full to a government-approved independent body.
An adjudication will be made as to who is entitled to what and the money returned within 10 days of the decision.
Housing Minister Keith Hill told BBC Radio 4's Money Box why the government had decided to act:
"We think this is really the right moment to introduce a measure that many tenants all over the country have been crying out for. I think this will really improve [their] quality of life."
Louise Martell from London was left feeling powerless when her landlord took 25% of her deposit when she moved out.
"I came away short by about £250 which they said they were going to take for cleaning, when the flat did not need cleaning at all. There was nothing I could do about it," she said.
Housing charity Shelter said Louise's story is common.
Its Director Adam Sampson said: "130,000 tenants every year are being ripped off by landlords. We are talking about sums well in excess of £500 and those are sums that people can ill afford to lose."
One scheme hoping to get approval has been up and running since May. It was set up by the Association of Residential Letting Agents (Arla), and is called the Dispute Service.
Over 100 Arla members are now signed up, including some well-recognised names like Bradford & Bingley and Countrywide.
Chief Adjudicator of the Dispute Service, Lawrence Greenberg, welcomed the government's decision to require agents and landlords to belong to a scheme like theirs.
But he said the problem of wrongfully withheld deposits will never disappear:
"One of the main issues is enforcement. All the good guys will voluntarily join a scheme, but it is the others who will run a mile to avoid it."
Landlords or agents who do not comply risk having to go to court, and in some cases, having to pay the tenant back three times the original deposit.
However, the problem is identifying all landlords, many of whom operate privately and are unaffiliated.
There is an onus on the tenant to check that they are handing over a deposit to someone who is registered.
Housing charity Shelter warns people to make sure they have been given the paperwork verifying the status of their landlord or agent.
Full details about how the scheme will work are still unknown.
The Housing Bill should get Royal Assent in a matter of days, but the new laws will not be in place until March 2005 at the earliest.
The laws are unlikely to be retrospective, so Louise Martell has seen the last of her £250. But she still thinks the change is for the best:
"If landlords sign up to it, I think it is a real step in the right direction because it gives people some address over what is basically theft of their money."
BBC Radio 4's Money Box was broadcast on Saturday, 13 November, 2004 at 1204 GMT.
The programme was repeated on Sunday, 14 November, at 2102 GMT.