Most private tenants in England and Wales will have their deposits protected by a new scheme from 6 April.
Tenants will have a better chance of getting their deposits back
The aim is to ensure that tenants can get their deposits back when they leave a property and not be ripped off.
The average value of a deposit paid by tenants to cover missed rent, unpaid bill or damages is £695 in England.
All new deposits taken by the landlords of assured shorthold tenancies will have to be secured with one of three schemes, under the Housing Act 2004.
One scheme will hold the deposits directly; the other two will provide insurance cover if a landlord defaults.
If the deposit has not been protected in the proper way the landlord will forfeit his right to evict assured shorthold tenants with two months notice once the normal six-month tenancy has expired.
The government believes that most landlords deal with their tenants' money fairly.
But the housing charity Shelter says this is not the case and that more than 75% of tenants who had their deposits withheld last year thought they had been treated unfairly.
"Shelter helps thousands of people each year with deposit problems and has campaigned for many years to get tenancy deposit protection introduced," said Adam Sampson, chief executive of Shelter.
"This money represents a sizeable chunk of cash for many tenants and losing it unfairly not only leaves thousands of people out of pocket, but can lead to homelessness," he added.
Once the new scheme comes into effect, any dispute about how much of the deposit should be returned will be sorted out by either a dispute resolution service or the courts.
In such cases, the deposit scheme that has been holding the cash will hang onto it until the matter was resolved.
The two insurance backed schemes will repay the deposit to the tenant if the landlord runs off with the money or fails to abide by the decision of the dispute service or the courts.
There are other potential sanctions against rogue landlords as well.
Should a landlord take the money but fail to use either of the three new deposit protection procedures, then as well as forfeiting the normal right to eviction, they could also be ordered to repay the money.
The court also could order that the money be safeguarded by one of the new protection schemes.
In addition, the court will levy a fine - of three times the deposit's value - which will then be paid to the tenant.
The new laws will be of relevance to the increasing number of buy-to-let landlords.
The Alliance & Leicester bank has predicted that their numbers will rise by another 40% in the next nine years.