One year on...

Liz Hodgkinson takes a look at tenancy deposit protection just over a year after it was introduced into the buy-to-let market

Liz Hodgkinson

“An offence has been committed by the landlord if the tenant does not receive a certificate of protection within the allotted time.”

Since tenancy deposit protection became mandatory in April 2007, more than £1 billion of deposits has been safeguarded in a total of three Government-approved schemes.

About 2,500 new tenancies sign up to one of the schemes each day and, as the rented sector grows, deposit protection looks like it’s becoming big business.

The legislation was introduced with a dual purpose: to ensure that rogue landlords and letting agents could not make off with tenants’ deposits and to act as an adjudication service in disputes.

The Government guaranteed the success of the scheme by making it a civil offence to take a deposit and not to have signed up. It also forces non-compliant landlords to pay their tenants three months’ rent as well as forfeiting their repossession rights.

Such measures have persuaded most landlords to sign up, but the scheme is having some unexpected side effects just over a year from its inception.

The good news is that the level of dispute has been vastly lower than expected, accounting for less than 2% of all tenancies. Fewer than 500 disputes have proceeded to adjudication and, as more than a million tenancies now come under the scheme, this is encouraging.

Other good news is that the scheme has encouraged landlords to upgrade their properties, thus ensuring an ever-upward standard of rented accommodation.

The less good news is that some of the schemes have experienced severe teething troubles, buckling under the heavy workload. Landlords and tenants alike have complained that it can take a month to get deposits out of the custodial scheme, and that certificates are often not issued within the 14 days’ grace that the Government has allowed for deposits to be protected.

Technically, an offence has been committed by the landlord if the tenant does not receive a certificate of protection within the allotted time, but it seems as though the call centres just don’t have the staff to cope. My own latest tenants had not received their certificate six weeks after I had banked the deposit.

Bigger deposits

The downside of the scheme for tenants is that bigger deposits are being demanded. The average deposit taken is now more than £1,000 according to the Tenancy Deposit Scheme; it was previously £500.

A growing number of landlords are also boycotting deposit schemes as they believe all are being punished for a few miscreants. Such landlords are no longer taking a cash deposit at all, but are using a guarantor, taking two months’ rent upfront or charging tenants a non-returnable administration fee. All these measures are perfectly legal as the legislation only kicks in when landlords take a deposit.

However, the National Landlords Association says that such a course of action is foolhardy and could make it impossible for landlords to claim back money for any damage caused.

Lawrence Greenberg, Chief Executive of one of the schemes, the Tenancy Deposit Scheme, says: “It’s all going very well and, so far, fewer than 2% of tenancies registered with our scheme have ended with a dispute. Even so, that comes to 6,000 disputes in just over a year, so the numbers are still quite significant.”

Being professional

He says tenancy deposit protection helps landlords to be more professional. “Most tenancies came to grief because landlords simply didn’t know what they were doing. Deposits got spent, inventories were not drawn up and the whole thing was a shambles. Now, this can’t happen.”

Steve Hilton, a spokesman for the National Landlords Association, says: “I think that all three Government-authorised schemes have had some teething problems. But when you consider that more than £1 billion of tenants’ cash is now protected, the scale of the impact of the legislation has to be taken into account. Landlords should keep taking deposits. It is the fairest and safest way of ensuring that tenants take some ownership and responsibility for the property while providing landlords with a sense of security too.”

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