1. Please introduce yourself.  Say a bit about yourself and your company

I am Kevin Firth, Director of The Deposit Protection Service, the only Government approved custodial scheme responsible for protecting rental deposits on behalf of Landlords, Letting Agents and Tenants.

The custodial scheme was originally intended to offer deposit protection to small private landlords and their tenants; as it’s free it was seen as the the ideal option for landlords with a small portfolio of properties. However, since we started back in 2006, we’ve seen a surge in our popularity amongst letting agents and landlords with much larger property portfolios and can now boast over 18,000 agents and 220,000 landlords.

Before heading up The DPS, I worked for the Bank of England for over 25 years.

2. How did you first become involved in property?

As an Australian company Computershare was already running a custodial scheme in Victoria so was ideally placed to bid for the UK scheme. I was part of the successful bid team who won the prestigious contract to provide the custodial scheme and so I took my first steps into the property industry when that process began back in 2004.

Since then I’ve seen the other side of the industry as well – with 3 daughters renting student properties, I’m practically a tenant too!

3. What do you think is your greatest achievement so far?

In business, I’m particularly proud of growing the DPS business from scratch – unlike the other two TDP schemes we did not have a database of members. Instead we were nervously hoping on day one that we would see some deposits registered. We now average 1500 deposits a day and even have landlords submitting deposits on Christmas day!

4. Do you or your company have any exciting plans for the future?

We’re always looking for ways to innovate and develop our services. We recently launched SMS alerts which help landlords and tenants stay on top of deposit repayment milestones. There are a couple of things in the pipeline but I’m going to keep them to myself for now!

5. What do you think are the greatest problems facing the private rented sector today?

The raft of legislation and regulations that new landlords are confronted with when they rent their first property.

6. What do you think are the greatest opportunities?

Buying and renting property can bring financial rewards – but remember it is a business that needs investment – paying for services such as independent inventory clerks will greatly reduce any potential losses at the end of your tenancies.

7. We have a new government.  What would you like them to do for the private rented sector?

I’d like them to make a fundamental change to the TDP legislation and place responsibility for protecting the deposit with the tenant. This way agents or landlords would never have access to the cash thus ensuring 100% compliance with the law – simple!

8. Do you use social media (blogs, twitter, LinkedIn etc)?  What place do you think it has in the future of the property industry?

Yes I’m a big supporter of social media. I’ve got my own blog (www.thedpsblog.com) and Twitter account (@The_DPS) which I try to keep updated. I think it’s important for businesses to take advantage of these channels; the informality of it all makes them more open and honest so you can really gauge public opinion. I’ve always got Tweetdeck open so I can check the latest news from the industry and answer questions from customers.

Social media provides direct access to a company, in my case the head of the company, what better way to offer your feedback or get your questions answered?

9. What is the most important lesson you have learned during your time in Property?

That people leave crazy things behind when they leave a property – it’s really opened my eyes to the nature of the British public – ‘Titillating Tales of Tenants’ Secret Lives’

On a more serious note – there are two sides to every dispute and there will always be an aggrieved party in every case.

10. What advice would you have to someone thinking of entering the property industry today?

My advice to new landlords would be to join your local landlord association and learn from others’ experiences.

Tenants should treat their rented property as if it were their own; the majority of landlords are good guys and will return their deposits in full if they follow this simple advice.

*****

Thank you Kevin.  I hope you’ll let me know about the DPS secret plans in due course!

To find out more about the DPS and the service they offer visit the web-site www.depositprotection.com.

He tells me that he arranged for a letting agent to protect the deposit, which they did with My Deposits.  He then went away travelling for a year.  While he was away, the agents ceased acting for him save for looking after the deposit.  However then, unbeknown to him, the agency busienss was sold to another company. 

The landlord, on returning back to this country, found that the new company had no record of receiving the deposit money.  It also seems that My Deposits wrote to him and to the tenant telling them that the deposit was no longer protected, but neither appear to have recieved the letter. 

The landlord is therefore left to pay the deposit money back to the tenant out of his own funds. He is also at risk of being  sued by the tenant for the penalty of three times the deposit sum, as the deposit has been unprotected for some time.

This just goes to show that often the DPS is the best and safest scheme.  Here the money is actually handed over to the scheme administrators so there can be no question of it getting lost and the landlord having to foot the bill. 

What do you think?  have you  experienced this type of situation?  Were you able to resolve it?

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)

The case is Draycott & Draycott -v- Hannells Letting Limited. The solicitors were PainSmith, who reported the decision here.

The matters in question were whether an agent can be liable under the regulations, and whether the landlord should still be liable to pay the penalty if they protect the deposit outside the 14 days but before the court hearing. The decision the Judge came to, in essence, was:

1. A agent will be liable under the regulations as well as the landlord, if it was the agent who was dealing with the deposit.

2. The award of three times the deposit sum is not payable if the landlord has satisfied the initial requirements of the tenancy deposit scheme being used.

In the Draycott case, the scheme being used was the Deposit Protection Service (DPS). The Judge took the view that, although the DPS’ scheme terms and conditions say in section 9

“The Landlord or Letting Agent is responsible for ensuring that Deposits are submitted for protection within 14 calendar days of the date of receipt by the Landlord …”

in fact

“In my judgment, the requirement that there be payment into the Scheme is the initial requirement of the Scheme, and not the requirement that that be done within 14 days”.

Therefore by protecting the deposit outside the 14 day period, the landlords agents were not in breach of the initial requirements of the scheme, and the tenant was not entitled to the award of three times the deposit sum.

This is perhaps an unfair summary of the case, and there is of course a lot more to the judgment than this. A lot of very sound points were made, which together go to confirm just how badly drafted this particular piece of legislation is. Anyone interested in the legal arguments should read the case decision, which is here.

However I suspect that a lot of non lawyers will be very surprised by a decision which finds that a contract term which says  “The Landlord or Letting Agent is responsible for ensuring that Deposits are submitted for protection within 14 calendar days of the date of receipt by the Landlord. …” is not in fact imposing an initial obligation that the deposit be protected within 14 days.

Some thoughts which occur to me:

• Surely it should be up to Parliament to decide the circumstances when a tenant is entitled to the award, not the tenancy deposit scheme’s legal draftsmen
• It is possible that there could be two situations, with exactly the same facts, where tenant A will be entitled to the award and tenant B will not, simply because a different tenancy deposit scheme has been used – is this fair?
• What if the tenancy deposit scheme rules have changed since the deposit was paid – how will the tenant know this, and will he be able to get hold easily of the terms and conditions current at the relevant time?

You may think of other problems, in which case please leave a comment at the end of this post.

This is consumer law which has been introduced to protect tenants deposits. The award of three time the deposit sum was put in the legislation as a deterrent to force landlords to comply. As most tenants are not lawyers and will not normally be able to afford lawyers to act for them, it ought to be possible for them to work out, reasonably easily, whether or not their landlord is in breach of the law.

However

• We now have a situation where landlords will feel that they can leave deposits unprotected until threatened by tenants with court action (assuming they do not wish to use section 21).
• In order to find out whether their landlords are liable for the award, tenants will have to read not only the legislation but also the terms and conditions of their landlords tenancy deposit scheme.
• We also have a decision where apparently straightforward wording such as “The Landlord or Letting Agent is responsible for ensuring that Deposits are submitted for protection within 14 calendar days of the date of receipt by the Landlord. …” is held to mean the opposite of what the ordinary man in the street would expect it to mean.

This is highly unsatisfactory and hopefully we will get a decision from the Court of Appeal shortly which will clarify matters.

In view of the uncertainty introduced by this case, I am withdrawing my Kit 2 (which is to assist tenants claim under the tenancy deposit regulations) from sale, until the legal situation is clarified.

If you have any thoughts or views on the ramifications of this case, please do leave a comment.

It seems that back in November 2009 they asked a number of questions of the Communities and Local Government (CLG) department (whose remit covers the tenancy deposit scheme) about the workings of the scheme. After two reminders and three months later, the CLG have finally provided answers.

Basically their comments were as follows:

• They are satisfied with the “consistently high” performance of all of the three tenancy deposit companies
• They think the schemes are working well and have had a positive impact
• They consider that the level of fees charged to landlords and agents is a commercial decision for the tenancy deposit company concerned and is not something they would seek to influence
• They “closely monitor” all three companies, and have found that “performance has been consistently high, with targets regularly being exceeded.”
• They are “satisfied with the independence of the dispute resolution services operated by the schemes”
• The existing contracts are due to run until March 2012. They don’t yet have a timetable for any re-tendering process.

When asked about the problems experienced by landlords whose agents had misappropriated tenants deposits, their response was (more or less) that it is really up to the landlord to carry out proper checks before using an agent. They went on to say however that it was wrong that agents should be able to set up without any qualifications or expertise, and that they had consulted on this and would be replying to the consultation in due course. Presumably (and hopefully) this means that regulation for letting agents is on its way.

I suspect that many landlords will have a few things to say about the CLG’s bland assumption that everything in the tenancy deposit scheme garden is rosy. Specific things that people have complained to me about include evidence for arbitrations not being put before the arbitrator, parties not being properly kept informed of the need to submit evidence, and the DPS refusal (for technical reasons) to refund the deposit money to a tenant after a court order has been obtained.

Last year I suggested to one of my Landlord Law members that she write to the CLG about her complaints, and you can read about this and the answer received from the CLG here.

If you are seriously aggrieved about the way you have been treated by one of the tenancy deposit companies, I would suggest you do as follows:

1. Write to the company concerned. They may be able to sort it out for you. Not always, but I have certainly known this happen.  In fact from talking to the people behind the schemes, they do genuinely want to do a good job and if anything goes wrong which it is in their power to correct, they will want to correct it.

2. If the matter cannot be sorted and it is clear that there is no redress for this particular situation (this is often the case with problems concerning arbitrations), write to the CLG and let them know about it. If lots of people write to them about specific aspects of the schemes which are causing problems, it will be difficult for the CLG to claim that they know nothing about them.

3. Write to me or one of the other bloggers who blog about this area of law. We can give the problem a bit of publicity, particularly if it is a miscarriage of justice. (Note however that I do not promise to publish *everything* I receive!). See my contact page for how to get in touch with me.

You can write to the CLT as follows:

The Department for Communities and Local Government
Zone 1/C4 Eland House
Bressenden Place
London SW1E 5DU

So that the letter goes to the correct person, I would suggest you have the words ‘Tenancy Deposit Schemes’ in your heading.

Mind you, having said that, there are thousands and thousands of tenancy deposits being protected, and I suspect that the vast majority of these are dealt with properly with no problems. So in the larger picture of things, the CLG are probably right when they say that the schemes are operating well.  In which case the three companies concerned are to be congratulated.

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