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From The Sunday Times

March 4, 2007

An end to disputes?

Deposit schemes sound great, says Rosie Millard, but which is best?

If there is any one element bound to get us landladies and our tenants irritated, it is deposits. Tenants are convinced landladies are out to steal their deposits; landladies are worried the tenant will withhold the last month’s rent. And that’s even before the rows about the history and cost of marks on the carpet, scratches on the bathtub and scuffs on the paintwork. Not with every tenant or every landlady, of course, but there have been enough deposit issues in the world of buy-to-let to ensure everyone has got very cross.

Enter the 2004 Housing Act, which has a section aimed at resolving deposit wrangles. And guess what? It is finally being implemented on April 6, after three years of preparation. So listen, landlords and landladies: if you have a property in England or Wales in which you are enjoying the fruits of an assured shorthold tenancy (AST), and where there is a deposit taken, it applies to you.

All landlords will be required to join a statutory tenancy deposit scheme. These have been designed to ensure that the tenant’s deposit is safeguarded, and also will provide a dispute resolution service if needed at the end of a tenancy.

It sounds simple. Confusingly, however, there is a choice of which scheme you can join. (And they all sound the same.)

There is a single “custodial” scheme, and two “insurance-based” schemes. The custodial scheme, known as the Deposit Protection Service, works as follows. The landlord registers at its website (paper forms are also available). The tenant pays the deposit to the landlord who, within 14 days, must pay the deposit into the scheme.

At the end of the tenancy, the scheme hands back the cash. The interest accrued goes to fund the scheme. If there is a row, it will be tackled by an independent dispute resolution service (broadly speaking, a panel of lettings agents, surveyors and various experts).

Now for the insurance-based schemes. The first one, the Tenancy Deposit Scheme (TDS), is run by the Association of Residential Lettings Agents, the National Association of Estate Agents and the Royal Institution of Chartered Surveyors. So it is estate-agent friendly.

“If you already rent your flat through a lettings agent, which keeps the deposit, you won’t notice any difference,” says Malcolm Harrison, spokesman for the TDS.

If the tenancy comes to a happy end, there is no issue. The lettings agent will return the deposit, and everyone gets on with their lives. However if there is a dispute, then the details will be sent to the scheme for alternative dispute resolution. “The TDS has been running for three years and already sorts out about 60 disputes a month,” says Harrison.

But what if you want to run your portfolio, and its deposits, yourself? This is where the second insurance-based scheme comes in. The Tenancy Deposit Solutions Ltd (TDSL) is the invention of the National Landlords Association (NLA).

“Our solution is designed for the landlord to continue to take and hold deposits herself or himself,” says David Salusbury, the chairman of the NLA. Joining via its website costs about £60; you then pay a fee per deposit of about £30.

“Out of the 850,000 buy-to-let landlords in the UK we estimate there are about 200,000 with a self-managed portfolio who will want to carry on holding the deposit. They are our core market,” he says. The fees will pay for the deposit to be insured and to pay for any dispute resolutions needed.

It’s a masterwork of ferocious organisation, but will it have teeth?

“Rogue landlords who refuse to be in any scheme will be tracked down by the local authority,” says Harrison. A more convincing answer might be that tenants can insist on landlords playing ball. Fourteen days after their tenancy begins, a tenant has the right to demand “prescribed information” from the landlord about which scheme their deposit is sitting in.

If a landlord is not in any scheme, he or she will face two penalties: they will lose the ability to evict a tenant under section one of the AST and face a fine of three times the deposit, which goes straight to the tenant. Given that the average deposit is £700, that is rather a good incentive for tenants to shop their landlord.

The aim is that after this has settled down, deposit issues will be a thing of the past. “They tried this in Australia,” says Salusbury. “At first, the level of deposit disputes was about 15% of those in the scheme, but this declined to 3%. The quality of tenancies improved, and landlords got better at agreeing expectations.”

The hope is that the state of renting in England and Wales will improve. Landlords will write better inventories. They will take photographs of the flat before the tenancy, so any damage done can be proved. Tenants will think twice before withholding the rent. Disputes will no longer clog up the small claims courts. Everyone will thank the government for a fantastic piece of legislation. That’s the hope, at least.

- Deposit Protection Service, www.depositprotection.com; Tenancy Deposit Scheme, www.tds.gb.com; Tenancy Deposit Solutions Ltd, www.mydeposits.co.uk

buytolet@sunday-times.co.uk

If you look at http://www.mydeposits.co.uk:80/landlords/about.aspx
it seems clear that the legislation applies only to ASTs created after 6th April and that there is no requirement for landlords to surrender existing deposits.

Allan Barham, Swansea,

Does this apply to new tenants or do we as landlords have to surrender deposits that we are already holding?

Judith Combes, Crewkerne, Somerset