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The new Tenancy Deposit Schemes will be effective from October 2006

One of the key measures in the Housing Act is the introduction of what are to be called Tenancy Deposit Schemes (TDS)

From October 2006, all landlords who take deposits and whose tenancies fall within the provisions of the Housing Acts (which includes all tenancies with a rental value of less than £25,000 a year) will have to join an authorised tenancy deposit scheme (TDS).

The idea is that these schemes will protect tenants’ deposits from rogue landlords who don’t pay up at the end of the tenancy.

In this newsletter, we look at how the schemes will work, why the government is bringing in the changes and why landlords should not ignore the new system. 

In next month’s newsletter (January 2006), we’ll look at who will run the schemes, what the cost is likely to be and how you should prepare when they start next year—October 2006.

There will be two types of tenancy deposit scheme (TDS).

First, there will be a “custodial scheme” where a third party will hold the deposit and pay out at the end of the tenancy on the terms agreed between landlord and tenant.

With the custodial scheme the landlord receives the deposit and then pays the same amount into an account in the scheme.

Then, once the tenancy has ended, either the landlord or the tenant can apply for the deposit to be returned.

If both parties agree on how the deposit should be split, it’s paid out by the administrator of the scheme.

If they can’t agree and it has to go to court, the administrator will pay out once the court has made a decision.

No interest will be paid on the money held in the scheme.

The second type of scheme is the insurance scheme. This will probably be more attractive to most private landlords.

Under this type of scheme, the landlord keeps the deposit. Then, if at the end of the tenancy there is a dispute, the landlord will have to pay the deposit amount into the insurance scheme.

This will then be held until both parties come to an agreement - with the amounts agreed being paid out by the administrator of the scheme.

Welcome:

Deposits have long been the bain of landlord’s lives, apart from those landlords who have no intention of paying them back.

Most see them as a form of protection, but some effectively see them as their bonus in the letting business—these types are in the minority I’m sure.

By far the most landlord / tenant disputes in private residential lettings arise from deposits and their return. What’s fair wear and tear? What represents damage? What is a clean

cooker? Who is responsible for minor repairs? Was this noted on the inventory or is there an inventory at all?

To be fair, many disputes arise from the unrealistic expectations of tenants but landlords don’t always realise how important a quick return of the deposit is to fix a tenant’s new accommodation.

Voluntary schemes have been tried in the past with limited success. It is going to be interesting to see how effective a compulsory scheme can be?

Or is it just going to add another expensive layer of regulatory bureaucracy to little effect—who in fact foots the bill? I’m pretty sure that Government has no intention of doing so!

Having a third party involved adds a degree of objectivity, which often helps the honest landlord—damage awards are sometimes more than the landlord asked for! The key, as always, is diligent management and documentary evidence! 

Editor.

Which Scheme is Preferable?

More attractive to most private landlords will probably be the insurance type of scheme.

Under this TDS scheme, the landlord keeps the deposit.

Then, if at the end of the tenancy there is a dispute, the landlord will have to pay the deposit amount into the insurance scheme.

This will then be held until both parties come to an agreement - with the amounts agreed being paid out by the administrator of the scheme.

As with the custodial scheme, if they can’t agree, a court would decide how the money should be split, with the administrator having to follow the courts decision.

The insurance company will pay out if the landlord fails to pay the deposit into the account.

Many questions still remain. For example, how will the alternative dispute resolution (ADR) procedure work in practice and after what time period would it be used?

If landlords and tenants do not want to use the dispute resolution procedure at what point would they have to go to court for a settlement?

How would the administrator avoid paying out to a tenant when the landlord had already paid out?

And, perhaps most importantly of all, what would be the likely cost of these schemes and how would the costs be structured? 

Schemes are now being made available for regulated letting agents—see link blow. Other schemes will eventually  be made available for private landlords through a competitive tendering process.

Useful Links:

ODPM—Tenancy Deposit Scheme

The Dispute Service— Deposit Scheme for Regulated Agents

Why Is the Government Doing This?

In bringing in tenancy deposit schemes, the government has clearly been listening to the likes of Shelter and The Citizens Advice Bureau. 

Shelter say, "A few ruthless landlords give the vast majority of good landlords a bad name and are taking advantage of people and withholding their money without good reason.”

Citizens Advice for their part have long argued that too many landlords treat rent deposits as their own money,

and say many don’t even bother to give tenants a reason for failing to pay them back.

Landlords rightly counter by blaming tenants for leaving properties in a dirty condition and with damage that goes beyond acceptable wear and tear. 

Peter Rogerson, a landlord in Leeds speaks for many when he says, “The whole idea of tenancy deposit schemes is built around the premise that it is landlords who are the bad guys. Most times landlords withhold deposits because the tenants haven’t cleaned up properly or have damaged things. Tenants all too easily forget how clean a place was when they moved in.”

Chris Town at the Residential Landlords Association says, “It’s a shame that good landlords are being forced to join tenancy deposit schemes which are only happening because of the small number of rogue landlords.”

Is This Something I can just ignore?

Landlords would be wise not to ignore the new TDS rules.

The government says that landlords who take deposits will have to tell tenants which scheme they are in and inform tenants about their rights under the scheme within 14 days of receiving a deposit.

Landlords could either do this by way of a note on the tenancy agreement or a special form could be used.

The penalties for not doing so are very tough. For example, if a tenant finds out his landlord is not in an authorised tenancy deposit scheme he can apply to a county court to get his deposit back.

The court can also impose penalties of three times the deposit amount which the landlords would then have to pay to the tenant!

Also, if a landlord isn’t in a scheme or fails to give tenants details about the scheme, it will not be possible to regain possession using a section 21 notice - the not so aptly named “accelerated possession procedure.”

Lease Plans—Commercial Tenancy

Land Registration Act 2002—one of the major changes after 13 October 2003 is that all new leases with terms over 7 years or existing leases sold or assigned with 7 years left to run must now be registered with Land Registry.

Not only will the property acquire its own leasehold title number but it will be noted on the Landlord's freehold title.

This will bring many more High Street shops, cafes, restaurants, industrial units and offices onto the Register.As part of the registration a compliant Lease Plan of the lease demise must be submitted.

In order to comply with Land Registry requirements the lease plans must be drawn to strict criteria.

Plan-London can provide these for you on a 5 working-day turnround.

Book Review: Identity Theft—prevention and victim assistance

Through recent media reports most people are now aware that everyone is vulnerable to the growing menace of identity theft and fraud. 

Perpetrated by criminals who scour our waste bins for personal details on carelessly discarded documents, this is the fastest growing crime in the UK with 120,000 impersonations in 2004, costing around £1.3bn.

In fact the problem goes beyond this; there are many other ways these fraudsters can trick us, and the private landlord is particularly vulnerable.

Personal details can be obtained without resorting to midnight searches through bins: sophisticated fraudsters can pick up this information from the Internet or insiders do it from banks, firms and organisations of all types.

This little, inexpensive book produced by the Credit Reporting Agency Limited gives accurate, concise and comprehensive guidance as to how to prevent yourself becoming a victim, and, God forbid, how to deal with it if the worst should happen.

It even provides 14 suggested letters to write to varies agencies if you become a victim.

Multiple Insurance Quotations are just a click away!

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