Tenancy Deposit Scheme
As everyone involved in the private rented sector should be aware, tenancy deposits taken for assured shorthold tenancies now need to be protected with a government approved tenancy deposit scheme. All schemes are required to provide a free arbitration service, in the event of a dispute regarding deductions from the deposit at the end of the tenancy. The tenancy deposit regulations came into force in April 2007.
The authorised tenancy deposit scheme companies
We have three government authorised tenancy deposit companies and three methods of charging:
1. The DPS are free to everyone, their running costs are met from interest on the deposits they hold
2. My Deposits charge a joining fee, an annual membership fee, and a fee per deposit protected (which, for landlords, is cheaper if done online). The basic fees for agents are more expensive, but agents can get significant discounts by pre purchasing blocks of protections
3. TDS (confusingly standing both for The Dispute Service and Tenancy Deposit Scheme) charge agents an annual flat fee which varies depending on the organisation regulating the agent and the number of tenancies registered at a specific date in the year. There is a sliding scale of discounts for firms which have generated few or no disputes. The fees for landlords are, we are told, calculated on an individual basis. Only agents who are regulated by specified organisations (ARLA, NAEA, RICS, NALS and the Law Society) are permitted to be members.
Problems with TDS
As most people in the private rented sector are aware, there have been a number of high profile problems with the TDS model which has necessitated changes:
- In January 2009 they withdrew membership from unregulated members, a move apparently forced on them by their insurers who had taken some heavy knocks from unregulated agents going bust.
- Last December they were reported to be dramatically reducing the number of adjudicators used
- This year agents have been rocked by massive hikes in their annual charges. This, we are told, is mainly due to the large number of disputes being generated, sometimes it seems for ridiculously low sums.
Comments on the TDS fee increase
As can be imagined the fee increase has caused considerable hardship for many agents. TDS somewhat glibly say on their site:
TDS was designed specifically for regulated agents and corporate landlords. We are confident that it remains the cheapest insured option for deposit protection for the majority of its members.
However many of their members may beg leave to differ. For example see some of the comments on this blog, such as those from:
- Kevin Burge, whose firm rent:cheltenham is a licensed ARLA agent which referred no disputes to arbitration, but which have had their annual fees increased by 23%, and who has big criticisms of the dispute system
- An anonymous commentator from a licensed ARLA firm, who reported that they had had 1 dispute for every 187 tenancies and have had their fee increased by over 1,000% (and say TDS refuse to say how this was calculated)
- Jonny from David Martin Estate Agents, who reported that his firm had about “350 deposits registered, 3 disputes and the fee is going from £583.00 to £3400.00”. A charge effectively to them of £939 per dispute, and
- Natalie from Temples, a NALS agency, who reported that her firms fee had increased from £818 to £3206 based on 274 tenancies and 1 registered dispute. She pointed out that the dispute was over a £150 cleaning bills which the tenant had insisted on challenging and which had been found in favour of the landlord (who was therefore justified in refusing to settle). However it seems that her firms is now paying the price of some £2,388 for this! Again she reports that TDS have failed to explain the reason for this 292% increase (based it would seem on the one dispute).
The fee increases have even been the subject of questions in Parliament as this exchange on 23 March shows.
Grant Shapps:
To ask the Secretary of State for Communities and Local Government whether his Department’s contracts with tenancy deposit scheme providers provide for it to intervene to prevent an increase in the level of fees charged by a provider.
Mr. Ian Austin: The Department has no role in the level of fees that the tenancy deposit scheme providers charge their members. Any increase is a commercial decision for the scheme providers.
What about moving to another tenancy deposit scheme?
Not surprisingly, many agents are now thinking of moving to one of the other two companies, although the commentators on my previous post were apprehensive about the cost of this and the extra administration.
However, in the last few days, My Deposits have reported that Countrywide Residential Lettings, the UKs largest letting agent, has moved to using their service with effect from 1 April 2010. Quite a coup!
MyDeposits now publish a special Q&A pdf download on their website setting out answers to frequently asked questions. This is very interesting, particularly Q18.:
Unlike TDS, we require the main correspondence address of the landlord (we do not accept ‘C/O’ addresses or PO Boxes) so that we can explain to them the principles of the legislation and what penalties they face if you, the agent, fail to protect the deposit or have your membership cancelled. If you do not wish us to contact your landlord for this purpose then we regret my|deposits is not suitable for your needs.
We undertake annual fraud and financial credit checks on all our agent members including the request for evidence of segregated client money accounts and balances within these accounts that match the level of deposit protection we provide. Failure to provide this evidence will invalidate membership.
It does seem, as they are not shy of stating, that My Deposits charging model is more robust than that used by TDS. My Deposits were always intended to be the ‘landlords tenancy deposit company’ and state in their Q&A that at present that they have approximately 50,000 landlord members to 3,000 agent members. However this may change. Most letting agents have gone through a very tough time with the credit crunch and are not in a position to easily absorb cost increases of 23% let alone 200-1,000%!
The ‘free’ DPS service is often not favoured by agents, as they prefer to hold the deposits in house, partly because of the interest income, and partly because it is easier for them administratively. However for those considering changing Kevin First of the DPS, comments
DPS does now offer bulk uploads – if you email the scheme we will send you the template. It’s very straightforward, you just download your tenancies into the template and send it back to us with your DPS Agent ID and we will upload the data into your account. Once you have transferred the cash all deposits will become active and deposit confirmations will be emailed to all parties – so there will be no gap in protection.
What are your views? Are you an agent with TDS? How do the increases suffered by your company compare with those citied here? Are you considering moving and if so will you go to My Deposits or the DPS?
(With thanks to everyone who commented on my previous post)
As it seems that both the ‘insured’ TDP schemes, TDS Ltd & mydeposits, (most particularly the former) insist on seemingly promoting & encouraging a lack of clarity and transparency, I thought it might be useful to provide some insurance orientated comments.
For the first three years of the existence of TDP, the two charged on an entirely different basis, TDS Ltd levied a charge per office, irrespective of the number of tenancies / deposits under their jurisdiction, whereas mydeposits made a flat charge per tenancy. So, as an example, an ARLA agent with say 1000 properties managed from one office would pay an average annual charge over the three years of circa £450 p.a. x 3 = £1,350 this in turn would equate to about £1.35 per tenancy over the period. However, the same letting agent using mydeposits would be paying, say, 1000 x £20 = £20,000. Hardly surprising then that mydeposits are not shy about claiming their charging model is more ‘robust’?
There is another reason for the confidence of mydeposits holding their prices stable and their active encouragement in trying to attract all types of letting agents into their scheme. The reason can be best explained in the passage quoted above regarding Q18 in the mydeposit Q&A’s. Unlike TDS Ltd, in the event of misappropriation of the deposit by a letting agent, mydeposits recover (subrogate) their loss directly from the landlord. It is, I believe, for that reason that they will not allow letting agents to use the scheme where the landlords contact details are withheld or unavailable. Their business model doesn’t really acknowledge the existence of the agent at all, as if the funds are not available when needed, for whatever reason, they revert directly to the landlord for recovery.
So, with effect from 1/4/10, TDS Ltd will be charging on a basis that is for more directly related to volume of tenancies, but with a minimum annual charge based on ‘worst case scenarios’ of £15 & £18 depending on membership. As an example, ignoring ‘discounts’ for disputes, an ARLA agent should only be paying £750 if they have no more than 50 properties under management, i.e. £15 x 50. If they qualify for the maximum published ‘discount’ i.e. £6 they will still pay £750. However, where the agent is deemed to be incurring an unacceptable number of disputes, using the 1000 properties scenario, the actual cost would now be 1000 x £15 = £15,000. Clearly, very much more in line with the mydeposits robust (realistic?) model.
The real worry for those participating in TDS Ltd is, a) how compromised was the business? b) will the fee increases bring it back into ‘surplus’ c) have sufficient numbers of agents agreed to renew? d) if they haven’t, how will this affect the level of the second tranche of monies due to be paid in the ‘summer’ to complete the 2010 / 2011 subscription?
In addition to the “Problems with TDS” quoted above, there are a few other points for which clarification should be obtained:- 1) Why were the annual report and accounts lodged so late with Companies House? 2) Why did they need to adopt an accounting convention that allowed / required them to ‘invoice’ users two and a half months before the fees actually became due and payable.
In conclusion, it appears clear that TDS Ltd have not been charging at a commercially viable level since inception. What is now being seen, is an attempt to correct the position to a more sustainable level. However, what is entirely unacceptable is the contempt with which they have seemingly treated the industry and public. Their continued lack of transparency is disgraceful, particularly from a company that is allowed to boast CLG approval and provenance. On that basis, if it were to fail during the currency of this year, then the government department concerned will be heavily implicated.
I hope this bring some clarity?
How did I know that Laurie would be interested in this issue? A great commentator on Estate Agent Today as well…let’s take a look…
http://www.mydeposits.co.uk is proud of its business model because it works and is robust. It was designed for landlords in the first instance and pay-per-protection is the mdoel that works for them. Although, as you can see now, more and more agents are receiving the great service from mydeposits by negotiating bulk purchases with discounts.
And you are spot on about subrogation. In the same way, the Housing Act says that final responsibility for the deposit is the landlords – mydeposits will attempt to recover the loss from the landlord.
And I’m afraid Laurie, you are incorrect. mydeposits is ultra-transparent (ask Ros Renshaw or Tessa). Ask any question and you will get an answer. We are totally upfront about the business. None of what you are suggesting is news or new – we have even written to all our landlord clients saying that they are ultimately liable for the deposit.
Laurie, are you going to declare your interests in TDP by the way? What is your track record?
Like it or lump it. TDS and my|deposits are not required to provide Client Money Protection. Maybe that is wrong, maybe that is right. But they don’t.
Steven Hilton
PR at NLA and my|deposits
So it seems my ‘posting’ was all accurate and thanks for the compliment, “a great commentator” – I feel humbled.
I have said nothing other than to confirm my belief that mydeposits does ‘work’ and is ‘robust’.
My contribution to Landlord – Law Blog, was not intended to be new or news, simply an aide memoir to provide a focus and enable a reader to understand what has happened and why and strip away the confusion & ‘spin’.
Let’s face it, mydeposits was ‘designed for landlords’ – period. Let’s leave it there. It’s mydeposits promoting itself to letting agents, but particularly those who are ‘unaffiliated’ and don’t have CMP, that arguably leaves landlords so cruelly mislead / exposed. If the insurance scheme doesn’t ‘protect’ them, what is the ‘premium’ they pay, other than a direct levy for the availability / use of an ADR which, perversely, the legislation / procurement outlaws?
As with many observers, I am heartily sick of the ‘insurance’ TDP providers quoting the Housing Act as if it were their own authority, endorsement or justification for their activities. There has never been any argument that it is the landlord that was ultimately responsible for the (protection of the) tenant’s deposit. It was the TDP procurement process that subsequently demanded that schemes designed for one market sector, had to be available for both agents AND landlords usage, irrespective as to who held the deposit. It is that which has caused the problem and effectively allowed providers to expand into possibly inappropriate areas of operation. In short, if you were limited to landlords only, why investigate the provision of CMP?
Ultra transparency? – OK, I did qualify my comment and said that you weren’t the worst of the two BUT, if pressed – i) when did you formally start explaining to landlords using letting agents, your recovery / subrogation policy and why? ii) how many internal adjudicators do you use? iii) conceptually, how can the NLA as a landlords association and in conjunction with their own appointed insurance providers, operate an ‘independent’ ADR? Shouldn’t you have a Council like TDS Ltd?
Who am I? – suggest you ask Ellie.
I would say ‘mostly accurate’…but I won’t split hairs…
I still think you should come clean about who you are and your involvement in TDP. It is important for the readets to understand you are not simply a mere lay commentator.
Moving on…
my|deposits was designed for landlords. But, from the start, always accepted letting agent members. Primarily, it took agents for whom TDS was a much more expensive option.
my|deposits Scheme Rules are as strict as TDS. They took the decision to dump unaffiliated agents and we felt that decision left landlords exposed.
The insurance premium landlords and letting agents pay is not designed to protect them it is designed to pay back the tenant in the event of misappropriation.
I think we too easily forget that the SOLE purpose of the legislation is to protect tenants. It is not interested in the protection of landlords and letting agents, fundamentally.
The levy landlords/agents pay simply allows them to hold the deposit (as they always did). It is absolutely not a direct levy for using ADR. my|deposits does not charge for ADR and never will. In fact, we still send 75 per cent of adjudications are dealt with externally by totally impartial and independent organisations.
Your grumbles about the Housing Act are best addressed to the Government. But my|deposits was never allowed to target only landlords. Both markets were open to all Schemes.
To answer your direct questions:
i) when did you formally start explaining to landlords using letting agents, your recovery / subrogation policy and why?
The Scheme Rules have made it clear from day one about the legislation and how my|deposits does not cover a landlord in the event of their agent going bust. Obviously we stepped up highlighting this fact during the credit crunch when so many agents were in trouble.
ii) how many internal adjudicators do you use?
Essentially, for smaller dispute claims they are managed by our internal team of five in-house adjudicators and a panel of six contracted adjudicators. For the larger disputes, they are sent to impartial and independent external organisations. We have only ever been upfront about this.
Unlike the other two schemes, my|deposits require their adjudicators to sign the adjudication decision and declare their professional qualification.
iii) conceptually, how can the NLA as a landlords association and in conjunction with their own appointed insurance providers, operate an ‘independent’ ADR? Shouldn’t you have a Council like TDS Ltd?
I think I’ve answered this. The NLA and HFIS are not involved in the day-to-day operations of my|deposits except for PR and marketing. ADR at my|deposits is totally fair and impartial. If you have evidence to the contrary, you should contact CLG.
As a small postscript, it might be worth reminding readers that only 0.6 per cent of deposits under protection at my|deposits actually require ADR.
It appears that many ladlords simply don’t pay any attention to the laws or (in many cases) simply want to keep the deposit for themselves.
It certainly pays any tenant to take the right advice when they enter into, and leave, their tenancy agreement. Nobody deserves to be ripped off, landlord or tenant.
http://www.RecoverMyDeposit.co.uk
FREE and impartial legal advice.
as a tenant i can honestly say you people makew me sick. you winge over price increases that you will eventually screw the tenants for. you say going to arbitration over ‘ridiculously low sums’ isn’t worth it – £50 may seem ridiculous to you but to me it’s a fortnight’s food! you drive around in mercedes, force me tio pay you £200 to fax a form every time i rent a house and claim you are hard up! you are leeches, totally unnecessary to the whole rental process, utterly despised by all tenants, who are forced to hold back their anger because if they show it you will slag them off to the next agent when they try to rent again and they will be unable to get another place to live. try not stealing the interest on tenants deposits. try not making up fees of £200 for something that actually costs £20. try not making up reasons to spend tenants deposits. one of you actually wrote that the arbitration scheme favoured a tenant! heaven forbid that anything in this hole of a country should favour the poor!
I have let the comment above through, although it is rather on the offensive side of polite, so I can say to anyone who considers that their agent is overcharging them, that they can always complain to their local Trading Standards Office. One of their brief’s is to look after the interests of consumers against businesses who are breaching the consumer legislation. If the agency is part of the Property Ombudsman scheme, you can also speak to him about it.
We all know that there are bad agents, and we are all hoping that the government will introduce legislation to regulate agents so the cowboys will be driven out.
Our experience as inventory clerks who are called in to make an impartial report because of the deposit scheme see the side of both landlord and tenant but it is unfair that the increases are affecting those who dont make a claim we believe the goverment should make the deposit holders a set fee that everyone can live with and there should be no money gain weather a claim is made or not they can still make the money on the interest. Property inventory clerk
Many thanks for your comment. The idea was that the arbitration hearing would be free so tenants would not feel intimidated in using it, but that does seem to have caused a few problems for TDS.
Note that it is only the DPS which gets the interest on deposits, as they are the only company which hold the money.
I think it important to understand that the ‘free’ ADR function is directly linked to the fee income (insured or custodial) collected by any of the TDP schemes, whatever the legislation intended. The reason it is a problem for TDS Ltd is that they seemingly pursued their stated corporate ethic as being ‘not for profit’, to an unsustainable level.
If the national average ADR usage level is 1.5% as has been regularly stated, then a charge per tenancy of say £15 would seem to be both affordable and provide a profit for the scheme provider. So why not charge landlord and tenant £7.50 each at the outset. As a proportion of the tenancy costs i.e. referencing and the actual deposit itself it is de minimus?
I have just used the TDS as a Landlord. I am extremly dissatisfied with their performance. It would apear that they are short of time and have not examined the case properly, leaving me with £1200 of repairs to get my property back to acceptable condition, with the tenant required to pay a derisory £100.00! Despite the fact that the broke two beds, blocked pipes and damaged walls.
That will be the arbitrator/Independent Case Examiner used by the TDS. Have a look at this post here: http://www.landlordlawblog.co.uk/2010/04/16/tenancy-deposit-arbitrations-common-mistakes/ and also this one: http://www.landlordlawblog.co.uk/2009/09/03/tenancy-deposit-arbitrations-why-landlords-keep-losing/
I agree. In USA I was paying administration fees between $25 and $75. For the same thing in UK you have to pay £200. Part of the fee is tenancy deposit scheme charge! It is important to document any minor damage in the property before you move in. Otherwise you can be sure that you are going to pay for it from your deposit when your are moving out. Actually letting agencies usually try to find any reason to take money form your deposit. Even normal wear is usually good excuse for them to take at least part of deposit. They know there is nothing you can do (that would justify effort, lost time) if they take for example £50 of your deposit for no reason.
Now I am renting with an agent who uses MyDeposits and my agent has charged me a £65.00 deposit handling fee. So, in order for my agent to meet their legal obligations, and after paying them a seperate £150.00 administrative fee for my tennancy, they charge me more than double what they pay to insure the deposit, which they themselves get to keep a hold of, so getting it back is even harder than it ever was.
Was the deposit protection scheme not set up to ELIMINATE exactly this kind of behaviour?