How safe is your tenancy deposit?

Basically if it is protected in a scheme it is safe, if it is not protected, it may not be.

From 7 April 2007 all tenancy deposits for assured shorthold tenancies have to be protected in a government authorised tenancy deposit scheme. There are three tenancy deposit schemes:

• The Deposit Protection Service
• My Deposits and
• The Dispute service / TDS

When you pay a deposit to a landlord or his agent, they are supposed to arrange for this to be protected within 14 days and give you a form with information about the scheme they have used.

What if you have not had the notice?

This will normally indicate that your deposit has not been protected. But you can check by contacting the three schemes and asking them. Their contact details are as follows:

• The Deposit Protection Service : website: www.depositprotection.com, tel: 0844 4727 000
• My Deposits : website: www.mydeposits.co.uk, rel: 0844 980 0290
• The Dispute Service / TDS : website: www.thedisputeservice.co.uk, tel: 0845 226 7837

If your landlord has not protected your deposit, what should you do then?

Well the best thing to do is to write to him.

Tell him that your deposit should be placed in a deposit protection scheme and ask him for confirmation that this has been done. You could also say that if he does not, there is a penalty of three times the deposit sum for non compliance.

There is no need to mention the fact that after the Tiensia case, the landlord will be able to protect the deposit late without penalty! In any case it is believed that this case is going to be appealed to the Supreme Court so this may change.

Hopefully your landlord will then arrange for your deposit to be protected so there won’t be any need for you to withhold the last months rent in lieu of being returned the deposit, as was often done by tenants in the days before the tenancy deposit scheme came in force (although you are not supposed to do this).

What if you find out that your deposit has not been protected after you have moved out?

You are probably in a stronger position vis a vis the penalty as it is understood that the rule in the Tiensia case does not apply if the deposit is unprotected when the tenant moves out.

Indeed we have a no win no fee service which relies on this, where a claim will be brought both for your deposit and for the award of three times the deposit sum.

Any questions?

If you have any questions about tenancy deposits, note that I will be interviewing Kevin Firth, the director of the Deposit Protection Service next week, for my first podcast, and will be putting to him questions received from readers to answer.

You can read a bit more about this and find a form for the questions >> here.

You can also find out more about tenancy deposits on my Landlord Law site.

Photo by Jo Naylor

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)

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.

The minimum fee has certainly had a bit of a hike, from £583 to £750, some 23%:

A third of the TDS membership has had their charges set at the new minimum. Only 12% of firms have been subject to any loading as a result of their high volumes of dispute referral. For those receiving a maximum discount, the average charge for a tenancy will be £10 or less.

Said John Hornsey, Chairman of The Dispute Service, the not-for-profit organisation responsible for the Tenancy Deposit Scheme: “Alarm bells rang last autumn but, in fact, they were set off by a small number of agents making disproportionate use of our ADR. Now we have evolved a much fairer charging system that takes full account of the way agents use the system, both in terms of the tenancies they protect and the disputes they prompt.”

To help members with the transition to the new arrangements, all new subscriptions for the year 2010/11 are being charged in two instalments. The second invoice, which will be issued in the summer, will take account of all changes to registered tenancies and any revision that can be made as a result of the numbers of disputes submitted.

Presumably after this, there will be fewer TDS agents taking a case to arbitration for disputes of £4.20.

My Deposits, in the meantime, smugly state that they are not increasing their fees at all. A press release on 22 December stated that prices would be frozen to 2009 levels, and a more recent press release on 19 January confirms this.  My Deposits Chief Executive Eddie Hooker, stirs it further:

“Last year’s TDS decision to only accept ‘accredited’ agents was intended to reduce the risk and cost of protecting deposits. Their announcement yesterday of a hefty price increase suggests this approach is not working.

“Letting agents are likely to be frustrated as they can expect further price increases if they are unlucky enough to experience more disputes. This could be the first step along the road to charging for ADR.”

You can’t help wondering why it is that the (mostly for) agents service (TDS) is finding it so difficult to manage that they have limited their membership to accredited agents and are now skewing their fees so as to discourage arbitrations, whereas the (mostly for) landlords scheme (MyDeposits) seems to have no such problems.  Could it be that landlords have been acting more responsibly?

What do you think?

It may be that TDS are hoping that the effect of their price hike next year will be to reduce the number of arbitrations.  It does seem, from what they say, that some of the arbitration referrals are inappropriate to say the least – for example the dispute over £4.20 which apparently is not unusual.

It would be interesting to know if the other two schemes have had similar inappropriate referrals, and if so how they intend to deal with the problem.  One would have thought that the DPS would have been particuarly vulnerable as they do not make a charge so cannot increase their fees to deter these cases.

Comments from the three scheme administrators welcome, as are comments from landlords or tenants on the quality of the arbitration service that they have experienced.