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Government backed tenants deposit schemes struggling to deliver says Bryn Cole, Managing Director of Paragon Advance.

“Letting agents who belong to the tenants deposit scheme will be seeing an unavoidable increase in costs” comments Bryn Cole, Managing Director of Paragon Advance, one of the country’s leading providers of products and services to the lettings industry. “The tenants deposit scheme is facing extra costs of 42% this year, which it will meet from current reserves. The reasons given are a substantial increase in deposit disputes. Lawrence Greenburg, Chief Executive has stated that the more disputes they get the more they will have to charge. In addition to this there are many horror stories of these government backed schemes taking months to resolve a dispute because of the backlog. Losers: Landlords with no deposit to repair dilapidations in a timely manner to re-let, tenants who have had their deposit withheld and need this for another property and letting agents with regard to both cost and administration. Everyone involved is a loser.

There is also more bad news for landlords as the deposit protection service has backed proposals for a mandatory landlord register. This is being proposed to account for and bring to task the reported 30% of landlords not registering a deposit.  It doesn’t, however, take into account the 70% that do.  It also doesn’t mention whether there would be a cost to this registration or any administrative burden. There is also an obvious potential backlog problem. Losers: landlords and tenants.

The National Landlords Association, apparently the largest in the UK, has come up with some interesting information on their website as to what landlords could do with regard to deposits. Unsurprisingly it highlights My Deposits (Tenancy Deposit Solutions Ltd). There is a cost to this service to the landlord. This scheme is jointly owned by themselves and their insurance provider Hamilton Fraser Insurance. Until the end of March 2008 Tenancy Deposit Solutions Ltd recorded total assets of nearly £1.6 million and balance sheet movements indicated an annual profit in the region of £275,000. The National Landlords Association Ltd records total assets of over £2 million, of which nearly £1.9 million is in cash. There is no mention of director or shareholder payments as these have not been made available to Companies House.  

Other information on their website relates to the above schemes mentioned. It also comments that an alternative is for landlords not to take a deposit. Indeed it is, however I’m not sure many landlords would see this as an acceptable alternative. Losers: not the NLA or Tenant Deposit Solutions Ltd.

Should the landlord not comply with the terms of these complicated schemes, they are potentially liable for three times the deposit amount. According to Mydeposits press release, during April 2009 less than 1 in 10 disputes were found in favour of the Landlord which is scary stuff.

There is a simple alternative which the NLA have conveniently failed to mention. A simple insurance policy underwritten by one of the largest legal expenses companies in Europe, that will pay the Landlord his dilapidations costs up to the value of one month’s  rent. No registration fee. No complicated processes. Just a very simple form for the tenant to complete. The landlord will be paid his dilapidations within 14 days of the claim being accepted subject to the terms and conditions being fulfilled, such as regular inspections and inventory checks and prompt claim notification. This is obviously of great benefit to the tenant as he can keep his deposit. It’s a relatively low, one off premium payment which of course can be funded by the tenant, who now hasn’t got to pay a deposit, via the tenancy agreement. Losers: No one.

Of course, it’s of great importance to ensure deposits are properly managed to the benefit of both tenant and landlord but surely bodies such as the NLA should be making their members aware of such alternative schemes. These alternatives won’t suit everybody but, whilst they are being excluded, it appears that there are vested interests behind the exclusion. I will let the reader decide.”