Without doubt, one of the greatest frustrations any tenant can face when leaving a rented property is to have their deposit withheld without any justification. Unscrupulous landlords have left many a tenant out of pocket by several hundreds of pounds, while disputes are frequent. Yet, the lack of recourse a tenant faces has finally come to an end with the introduction of the Tenancy Deposit Scheme (TDS) in England and Wales.
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The scheme aims to provide clarity and security by means of having deposits held by a third party. All landlords letting property under an Assured Shorthold Tenancy agreement are now required by law to be registered with one of the three government-authorised schemes on offer to protect tenants’ deposits. Failure to do so could result in a court order to pay tenants a penalty of three times the amount of the deposit.
This is by no means pocket change when one considers that the National Landlords Association (NLA) estimates the total amount of deposits held by landlords to be £1.2 billion, with 40 per cent of the 2.2 million tenancies rolling over each year. The NLA has predicted that in a worst-case scenario, the potential windfall for the nation’s renters could be tens of millions of pounds.
Whether this is possible is anyone’s guess, but what is fact is that tenants now have the power to take landlords to court for not protecting their deposit.
Providing clarity
Pierre Williams, head of communications for Instant Access Group, comments: “Everyone should see the scheme as good news that avoids claims of unfairness. There’s a bit more extra work to be done, both by the landlord and the tenant, but it provides clarity and that’s as useful for the tenant as it is for the letting agent.
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“In practical terms, it means that landlords will have to have a full inventory of the property. We are also advising landlords to have costings done for any decoration or replacements that may be needed. The TDS forces people to do more homework, but both should feel more comfortable as a result. It’s a small amount of work that will reduce or eliminate future hassle.
“Holding the money in escrow is the only way of ensuring it’s fair, as it’s much easier to retain a deposit if you hold it.”
Simon Gordon, head of public affairs for the NLA, points to the success of a similar scheme that was introduced in Australia, which saw an initial surge in disputes that rapidly fell away. However, he adds: “It won’t get rid of the rogue operators. There will always be people under the radar who will misbehave. Yet, it should remove the bone of contention once and for all where some people feel aggrieved that some or all of their deposit was withheld unfairly.”
Gordon feels the TDS could help raise standards across the letting industry, as buy-to-let investors could seek more professional advice on what duties and obligations they have. He says: “Landlords should join a representative association where they have access to advice. There are a lot of very local and small associations, but we cover nationally, including Scotland, where there isn’t a TDS scheme yet. I think the Scottish Executive will wait to see how it works, but I imagine there will be pressure to introduce it.
“Obviously, we say to buy-to-let landlords – don’t ignore this; it won’t go away. The landlord has to tell the tenant which scheme the deposit is protected in and give a receipt and certificate.”
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No adverse effect
The mortgage market is predicted to receive no adverse effect from the introduction of the scheme. Gus Park, head of buy-to-let and lifetime mortgages for Bradford & Bingley, comments: “It’s a small inconvenience for landlords for what is overall a good cause. I don’t think it will have any material impact on the market.”
Yet, the general awareness of the scheme among landlords, letting agents and advisers is an issue and no one can agree whether enough has been done to raise its profile.
Brian Poole, mortgage adviser for AM Ruthven Ltd, certainly feels many clients are unaware of the scheme, but adds: “People learn quickly and bad news travels fast. I feel it would be useful if it was on Key Facts Illustrations and mortgage offers – then the clients can’t say they didn’t know about it. However, run-of-the-mill landlords are not interested in it and a lot of clients bury their heads in the sand.”
As ever, this leads to the fact that the role of the mortgage intermediary remains vitally important in advising BTL clients and raising issues they might not know about. As Andy Frankish, managing director for Mortgage Talk, says: “Intermediaries have a duty to explain things, including matters that we don’t consider fully under our mandate. It’s not our responsibility to broach these things, but we have a duty under best practise.”
