Why Tenancy Deposit Protection needs to stay

Steve Harriott, Chief Executive of the Tenancy Deposit Scheme

In the last week we have seen Which? publish a report that cast doubts about tenancy deposit protection. If its recommendations were implemented there is a very real possibility that the consumer protection for tenants might end up being worsened.

Discussing the future of tenancy deposit protection (TDP) is of course something that we actively encourage. TDS (Tenancy Deposit Scheme) currently protects almost 1.5m deposits across the UK and we’ve been looking after tenants’ deposit monies longer than any other scheme. Indeed, last month [July] we celebrated our 15^th anniversary of doing just that.

Deposit protection is continually developing and we know that it is a significant and emotive subject. It is in everyone’s interest to constantly look at how the private rented sector  and tenancy deposit protection can become stronger.

Passporting

The Which? report had a number of criticisms of the way in which the current tenancy deposit protection system works.  Some of these are valid and echo our concerns.  For example its research found that for one in six tenants it took longer than four weeks to get their deposits back.  In our work within the TDS Academy we are keen to stress the need to resolve deposit deductions quickly; indeed once 10 days have elapsed from the time that tenants first ask for their money back they can raise the issue with the tenancy deposit schemes.

We also share the concern of Which? about the problems that some tenants face (especially in London) of having to find another deposit for their next property whilst still waiting for their current deposit to be repaid.  Which? and others continually promote the solution of the so called “passporting” of deposits; allowing tenants existing deposits to be paid directly to a new landlord.  It sounds like a great idea but the big problem is that the new landlord can never be certain that the tenant’s existing deposit will be paid back in full, so why should they take the risk?

This means that this idea is a non-starter without some form of tenant guarantee.  For example we have analysed the last c20,000 deposit repayments we have made for TDS Custodial and in 42% of cases the tenant agreed some form of payment to the landlord.  The average payment is £275.  In a deposit passporting world this would mean that the new landlord would not be getting what they expected in 42% of cases.  If you were a landlord would you take this risk?

To address this we have been promoting the idea of a variation of an insurance policy to help bridge the gap between the old deposit being repaid and the need to pay a new deposit now.  But there is no easy solution to this perennial problem and people have been looking at the issue for years!

Deposit replacement insurance

We also agree that there is room in some parts of the market for insurance-style options in deposit protection and this is why we are working with Zero Deposit.  But we are stressing to Government the need to ensure that these new providers are properly regulated by the Financial Conduct Authority (FCA).  And interestingly organisations like Shelter and Generation Rent are opposed to these schemes as they feel they do not offer value for money for tenants.

A lettings regulator?

Which? has also suggested the creation of an independent regulator for lettings and management agents. This is something that we can support in addition to its call for a code of practice which reflects our own code of recommended practice which we launched last year. The Government has already has conceded this point in its response to the recent consultation.

The existing TDP schemes?

It is the Which report’s criticisms of the existing tenancy deposit protection schemes which do need to be challenged.

Which? says that the most common reason for deposit deductions in their survey was for cleaning and it claimed that many of those who faced deductions for this were unhappy.  This mirrors our experience over the last 11 years of deposit protection with this area featuring very highly in our own league table of deductions.

Cleaning is clearly an emotive subject as no-one likes to be told they have left their property dirty but day in and day out we see clear evidence in check-out reports that properties are being left in a less clean condition by the outgoing tenants.   We also see cases where these claims are exaggerated.

Simply put: if the case goes to Alternative Dispute Resolution (ADR) and the landlord can’t evidence that a deduction is valid, then the landlord’s claim will be lost.  We have invited Which? to our offices to see how we deal with cleaning claims so that in future they can base their recommendations on the basis of what really happens in practice.

The issue which most concerned me in the Which? report was the assertion that half of tenants who didn’t get their money back in full challenged the decision.  This statistic was used to make the point that the tenancy deposit protection schemes are not working effectively.  The facts however do not support this claim and we are disappointed that Which? did not bother to check their facts with us beforehand.

We have actual evidence of tenant behaviour and know that in 19,742 agreed deposit repayments handled by our Custodial scheme in the period from April 2016 to July 2018 a total of 11,387 (58%) of tenants got their deposit back in full with the agreement of the landlord.  The remaining 8,355 (42%) saw the tenants agreeing that the landlord could receive a deduction from the deposit.  In every single one of these cases the tenant could have taken the case to our adjudication service but they chose not do so.  In fact there were only an extra 286 cases in the same period that went to the ADR process.

In our view this shows that the tenancy deposit protection system is working very well; in 58% of cases tenants get their money back in full because the landlord and tenant agree and in 42% of deposits the landlords and tenants agreed that there is some reason why a deduction should be paid to the landlord.  Indeed in 6% of deposit repayments the tenants agreed that all of the deposit should be paid to the landlord.

Our statistics show that Tenancy Deposit Scheme is offering a really simple way for the tenants and landlords to agree who should get what.

Tenancy agreements

The Which? report claimed that there was a lack of clarity about what deposit money can be used for.  In our actual experience, in almost all cases we see the tenancy agreement does set out for what the deposit can be used and if there is a dispute and the tenancy agreement does not allow a specific deduction, the schemes will reject it.

Satisfaction with the ADR service

99% of all deposits we protect don’t end up in dispute.  Where there is a dispute, we have a robust, impartial process to ensure that the right money goes to the correct party.  Our adjudicators start from the premise that the deposit belongs to the tenant and it is up to the landlord to prove that a deduction can and should be made.

When a tenant (or indeed a landlord) loses an adjudication, it’s understandable that they might feel disappointed.  When we survey people who use our ADR service this is also what we find.

The Which? report said only a third of tenants who raised a dispute were satisfied with the process.

In 2017-18 TDS dealt with over 14,630 disputes and only received 240 (1.6%) complaints about the adjudication decision.  These tend to be where the complainant argues that the adjudicator may have missed some compelling evidence which means that the adjudication is not sound.

All of these are investigated by another adjudicator and we acknowledged we had made errors in 70 cases (or 0.4% of disputes).  This shows that TDS does have an effective complaints process which puts things right when we make mistakes in our adjudication.

Be careful what you wish for?

There is a strange climate around lettings at the moment.  The Government’s view that the housing market is broken is leading to a plethora of legislation, changes and consultations.

Of course there are improvements that could be made to how the tenancy deposit protection schemes work and we have made suggestions to Government such as: removing the need for prescribed information and asking the schemes to provide this; introducing a decision review process as happens in Scotland and Northern Ireland and removing the statutory declaration requirements for single claims.

However go back to pre-2007 where deposit protection did not exist: tenants regularly got ripped off by landlords and agents, and this was what led to statutory tenancy deposit protection being introduced.  In 2018 almost all deposits are now properly protected, tenancy agreements specify what deductions can be taken from the deposit, inventories have become almost universal and of higher quality, tenancy deposit schemes have developed on-line solutions to enable tenants and landlords to negotiate their return and free ADR exists to resolve any disputes.

The fact is that TDP is a success and is something we should all be proud of . And as for Which?; our door is always open and we can show you what really happens on the ground.

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