tenancy deposit protection schemes
AUGUST 2008
The need for deposit protection
In December 2007, 28% of participants in St Andrews’ How To Rent survey reported that their property agent/landlord had taken more than 28 days to return their deposit, with 24% stating that they felt unjustified deductions had been made. Deposit protection schemes would rectify this problem. They would also provide protection in the event of a property agent suffering financial problems or bankruptcy. In early 2007, a property agent in St Andrews found itself in £10.5 million of debt and was forced to cease trading – taking thousands of pounds of tenants’ deposits with it. This is money that the vast majority of students cannot afford to lose.
Unfortunately, these incidents are not isolated to St Andrews – they are a national problem. Tenants are in need of a fairer system for settling disputes about the return of a deposit at the end of a tenancy. At present, it can be difficult to retrieve deposits from landlords, especially if there is a dispute. There is a clear need for Deposit Protection Schemes in Scotland.
How the schemes work
The tenant pays over the deposit (commonly one months’ rent) in the usual way when the tenancy agreement is signed. The property agent/landlord has 14 days from the commencement of the tenancy to provide the tenant with details of the scheme that they are using – this is the agent/landlord’s decision to make. They must also supply the tenant with details of how to recover the deposit at the end of the tenancy, and any mechanisms of dispute resolution.
There are two types of scheme; insurance backed or custodial:
• Custodial: the landlord or agent pays the deposit to the scheme, which will keep it until the end of the tenancy.
• Insurance: landlord or agent keeps the deposit but pays insurance premiums to the scheme. This means that the deposit is insured if there is any dispute, and the scheme will repay the tenant the agreed amount directly. The insurance scheme can charge fees to landlords for membership and can require contributions towards the costs of insurance.
If the tenant and the agent/landlord both agree on how much of the deposit should be returned, the tenant should receive it within 10 days of agreement.
Custodial schemes pay back deposits with interest directly to the tenant, either by cheque or by electronic transfer. Deposits held in the insurance-based schemes will be repaid by the landlord either in cash or by cheque, as they choose. Deposits held in the insurance-based schemes will not pass on any interest to the tenant.
If a dispute has arisen then the parties will be invited to make use of the Alternative Dispute Resolution process that is provided free within all schemes. Should the parties opt for Alternative Dispute Resolution they will be bound by its decision with no redress to the courts, but they can always opt-out and take the dispute to the courts, as usual.
The current situation
Mandatory tenancy deposit schemes were introduced in England and Wales in April 2007 under the Housing Act 2004, and there are similar schemes in place in Ireland, Belgium, France, New Zealand, Australia and Canada. They have not yet been implemented in Scotland, though there is provision for them in the Housing (Scotland) Act 2006 – ministers must first agree that the schemes are a good idea, and then agree on the details. This could include a limited or voluntary scheme. What they have lacked up to now is solid (rather than purely anecdotal) evidence on which to act.
Many landlords and letting agents oppose the introduction of these schemes due to the associated increase in administration, and in the current climate they are somewhat wary of additional regulation. Though the legislation allows for the creation of deposit protection schemes, this is by no means guaranteed or obligatory.
Recent progress
As a result of lobbying from St Andrews Students’ Association, the Labour Higher Education Spokesperson, Claire Baker MSP, tabled a members‘ business debate on 18th June 2008. The full text of the motion and transcript of the debate can be found here.
The motion was supported by Labour, Lib Dems, Greens, and Margo MacDonald.
The Conservatives raised concerns that extra regulation may have a negative impact on business, but acknowledged that the problem of withheld deposits is significant and the current schemes in England and Wales are now working well (despite some initial teething problems).
The Minister whose remit this falls under (Stewart Maxwell MSP, Minister for Communities & Sport) is adament that the Government is already taking adequate action in researching deposit protection schemes, however there does not appear to be any solid commitment to introduce them or a timetable for action – the Government appears to be stalling as a result of pressure from landlords and civil servants (as a result of the quantity of new regulation that has been recently introduced, e.g. landlord registration, voluntary accreditation, etc). A stakeholder group set up to help the gather evidence on the scale and nature of the problem has only met once, more than a year ago.
What CHESS is doing
1. Writing to Stewart Maxwell MSP and asking for:
i) a commitment to introduce tenancy deposit protection schemes;
ii) a timetable for action;
iii) a meeting to discuss these issues.
2. Writing to each of the party spokespersons requesting that they clarify their party’s position.
3. Writing to each of our constituency and regional MSPs, asking for their support.
4. Developing detailed case studies giving real world examples of hardship, which can be used to emphasise our case in all of the above correspondence.
5. Forthcoming press release.
