Calls For Changes To Tenancy Deposit Protection Scheme
Consumer group Which? has released a study highlighting what it calls the “broken” tenancy deposit protection system. They have proposed changes to the existing system, including the introduction of a passport system.
The group has called for Deposit Protection Schemes (DPS) to tighten their procedures, especially when it comes to the amount of time they take to resolve disputes and return deposits to tenants after a tenancy ends.
Chief executive of the Tenancy Deposit Scheme (TDS) has responded, agreeing with some of the points made, but disputing the viability of the passport scheme, saying that landlords would be unwilling to take the risk under the proposed scheme.
Deposit Protection Schemes
Since 2007, landlords have had to place any security deposit they receive from tenants into a government accredited Deposit Protection Scheme (DPS). This offers security for both parties. The money is stored safely, which means that tenants don’t lose out if a landlord or property management service has financial struggles.
The scheme also requires that both tenant and landlord agree on any deductions, and the money should be returned within 10 days after the two parties agree on values. When the DPS was introduced, the government said that it should reduce disputes and minimise waiting time, but concerns have been raised over the scheme.
Landlords have a period of 30 days from receipt of the deposit to protect the money. A failure to do so means that the tenant has the right to take you to court. The court may demand that you pay as much as three times the deposit amount, as compensation, and landlords that do not protect deposits will find that their options are severely restricted when it comes to options to evict tenants. Using a DPS is not optional, and trying to avoid using one of these schemes is definitely not considered sound practice.
Consumer group, Which?, have been particularly vocal about their objections to the scheme.
They conducted a survey of tenants. 43% of respondents said that they have had to use credit cards, overdrafts, loans, or borrow money from loved ones to pay a deposit, while waiting for their previous deposit to be returned. They also highlighted the most common issues that landlords give for withholding a deposit.
In 50% of cases where the landlord withheld some of the deposit, the reason given was that the premises needed cleaning. 81% of those people said that they felt the charge was unfair. 32% had money deducted for damage to the property and 75% of these people felt the charge levied against them was unfair. Under the current DPS program, landlords should highlight exactly what a deposit can be used for as part of the tenancy agreement, which needs to be agreed and signed by the tenant. Therefore, both parties should be aware of deposit deductions that might occur at the end of a tenancy.
As well as stating that deposits needed to be returned sooner, Which? highlighted the idea of a deposit passport, where the deposit paid transfers from one landlord to the next, meaning that the tenant would not have to wait to get their deposit back before they could give it to their new landlord.
The Tenancy Deposit Scheme Response
Chief executive of the Tenancy Deposit Scheme (TDS), Steve Harriott, said that he agreed with a lot of the points made, in a blog post response. He agreed that it was wrong that some tenants were being made to wait as long as 4 weeks before their deposit is returned and agreed that more should be done to prevent exaggerated claims by landlords, but did highlight the fact that tenants are able to dispute claims and have the TDS look into the problem before determining how much of a deposit should be returned.
The idea of an independent regulator for lettings and management agents, and pointed to the code of practice that they themselves have published and follow.
Harriott disagreed with the idea of a deposit passport scheme, however. He highlighted those cases where landlords had a legitimate reason to withhold a portion of the deposit. This means that the next landlord would only receive a portion of the deposit they are owed, and additional action would need to be taken. Harriott questioned whether landlords would be willing to take this risk when considering a new tenant.
He also pointed to the fact that adjudicators work from the basis that the deposit belongs to the tenant and not the landlord. Therefore, the landlord must show and prove that they entitled to keep a portion of the money; it is not down to the tenant to prove that they should get the deposit back. He went on to say that the tenancy agreement should include details of what the deposit can be used for, and in those cases where no such guidance is given, the tenant is highly likely to win any adjudication and will receive their money back. Therefore, if the tenancy agreement does not specifically state that some of the money can be used to pay for cleaning if the property is left untidy at the end of the tenancy, then the landlord is not entitled to keep money for this purpose.
He also highlighted the importance of conducting proper check-in and check-out assessments, and for taking an itemised property inventory. These checks require that the tenant and landlord, or landlord’s representative, take an inventory of everything inside the property, and clearly highlight the condition of the rooms and the building itself. This ensures that everybody is aware of the condition of property, and it can help to minimise disputes over things like cleaning and repair bills.
In summary, Harriott said that “in 2018, almost all deposits are now properly protected; tenancy agreements specify what deductions can be taken by the deposit; inventories have become almost universal and of high quality; deposit schemes have developed on-line solutions to enable tenants and landlords to negotiate the return; and free ADR exists to resolve any disputes.”
Darren Clark is director of PDF Estates Ltd, a property management company based in London and managing landlord properties in London, Hertfordshire and Bedfordshire. New landlords enjoy 3 free months of full property management.