Deposit Protection Private Rented Sector Landlords Tenants

Deposit protection for private landlords – is there something dodgy going on?

I’ve just forced the publication of some interesting figures in response to a Written Parliamentary Question I put together on deposit protection schemes. Here’s the background.

Under the Housing Act 2004, most private landlords in the UK are required, by law, to register any deposits their tenants pay to a third party – essentially a company, contracted by the Department for Communities and Local Government, to protect them.

If you live in an “Assured Shorthold Tenancy” – the most common type of private tenancy in the UK – then you should. by law, be registered with one of these schemes. Resident landlords who live in the property with you are under a different, much less secure form of tenancy and they’re not required to do this. Your landlord should have informed you which scheme the deposit is registered with. Under-registration by irresponsible landlords is a whole different issue and I won’t go into this here, but suffice it to say that you may wish to reflect on your choice of landlord if you haven’t been told your deposit is registered!

What are the benefits of registration? Well once you leave your tenancy and it comes to the point where you have to return your deposit, you get an extra shield of protection if you dispute the settlement the landlord is suggesting – i.e. if you think they’re wrong about you breaking that oven. If you both agree, you can take the case to the deposit protection scheme to adjudicate who is right and make a settlement, through a process called “Alternative Dispute Resolution (ADR).” The only other option would be for you to take your landlord to court, which is generally not advisable on cost grounds – it’s often in both parties’ interests to settle out of court through ADR.

There are three Tenancy Deposit Schemes in total and I copy the details in the table below, together with the number of deposits registered and the type of scheme they operate. There are two types of deposit: “insured”, where the landlord keeps the deposit but has to hand it back if the scheme finds against him; and “custodial”, where the money is actually held in an account by the scheme itself. The table below gives details on the number of adjudications heard by each of these schemes since they were first set up.

Name of Tenancy Deposit Scheme Number of Deposits Scheme Type
Deposit Protection Service – Custodial 1170564 Custodial
Tenancy Deposit Scheme 1135000 Insured
MyDeposits 738853 Insured
Deposit Protection Service – Insured 20944 Insured
Scheme Adjudications in 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Deposit Protection Service – Custodial 69 1901 3600 3359 5617 7245 8945 9671
Tenancy Deposit Scheme 305 5040 12111 11610 10202 11992 9482 11900
MyDeposits 84 1157 2988 4851 4460 5211 6590 5580
Deposit Protection Service – Insured 0 0 0 0 0 0 12 83

In the Written Parliamentary Question I worked on (see here), we asked the Communities Secretary for the number of ADR adjudications each of these schemes heard; and the outcome of cases adjudicated by each of these schemes.

Here’s the answer we received:

Name of Scheme % Awards 100% to Tenant % Awards Split Between Landlord/Agent and Tenant % Awards 100% to Landlord/Agent
Deposit Protection Service – Custodial 25% 57% 18%
Tenancy Deposit Scheme 13% 62% 25%
MyDeposits 35% 56% 9%
Deposit Protection Service – Insured 17% 67% 16%

The most striking figure here is the quite pronounced difference in awards to landlords and tenants between the second and third-largest deposit protection schemes, namely the Tenancy Deposit Scheme and MyDeposits. The Deposit Protection Service sits in the middle of these two extremes.

Now these differences may be entirely due to random chance. The difference in adjudications may also not have anything to do with the quality of the adjudicators either: it could reflect differences in the types of landlords and/or tenants in each of these schemes. But it’s nevertheless food for thought and I think it requires some further research.

The above provisos acknowledged, here’s my tentative suggestion on what the figures on adjudications may show…

There may be a fundamental problem with the way the tenancy deposit schemes market works, because it is up to landlords – and only landlords – which scheme they register with. Tenants won’t know anything in advance of their signing the contract. Therefore, common sense dictates that the key incentive for the schemes, if they want to get “customers”, is to tailor themselves to the needs of the landlords.

Herein lies the problem: the sad reality is that some deeply irresponsible landlords take the view that the deposit is “theirs” once given and that it is their responsibility alone to decide how to award the deposit once a tenancy ends – they don’t see this as a two-way process with tenants.

One obvious solution to this problem would be to do away with the market entirely and just have one scheme, so there is no incentive. I think this is potentially a very good idea and I’ve heard very similar arguments made with respect to examining boards’ for schools, where again the incentive on providers seems to be to make the exams easier for the key “consumer” – namely, teachers – to pass their students.

But to play devil’s advocate, there’s a reason to be cautious about this kind of reform. If landlords don’t like the system of ADR, they may push their tenants to take it to court. This would undermine the whole system of deposit protection and leave us back on square one.

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