TDS – CONFUSED? DON’T BE.
The TDS scheme is finally upon us. From the 6th April taking a tenant deposit will never be the same again. In response to this and the confusion that many landlords face over their responsibilities and options. Property Hawk the fastest growing portal for UK landlords has launched a dedicated tab that provides advice and product links to ensure that you are kept fully in the picture.
Not only this, you as a valued registered user of Property Hawk are now FREE to download through your Property Manager a TDS compliant Inventory Form . This together with the advice in the Landlords Bible on How to prepare an Inventory will enable you to prepare a complete inventory. This will enable your interests to be protected if a dispute between you and your tenant a rise and the case goes to arbitration.
The new system
The Tenancy Deposit Scheme (TDS) bought about by the 2004 Housing Act introduces from the 6th April 2007 a mandatory system for all NEW assured shorthold tenancy deposits. From this date landlords will either have to deposit their funds with the approved custodial scheme or with one of the two insurance backed schemes. The other alternative is not to take a deposit at all.
There are several schemes that have come forward that allow landlords to do this.
1. Custodial Scheme
The Deposit Protection Service (DPS) operates the custodial scheme to which the landlord is required to hand over the deposit monies to it as the nominated third party. DPS is owned and managed by Computershare Ltd who for the last 8 years have run a similar scheme in the state of Victoria, Australia. The landlord or their agent is given 14 days from receipt of the deposit to pay it to DPS either through an online or paper based transaction. The scheme is financed out of the interest earned on the deposited money. Interest is paid at the Bank of England Base rate. DPS takes 2.32% of this as its’ charge. Any surplus interest is then repaid to the landlord or tenant depending on who is entitled to it. Full details of the scheme are available in the Landlords Bible.
2. Insurance Scheme
The government has also approved two insurance backed schemes. These allow landlords to hold on to the deposit monies providing they are insured by one of the approved schemes. Tenancy Deposit Solutions Ltd is a scheme primarily aimed at individual landlords whilst that operated by the Dispute Service Ltd is intended to cater for agents and professional landlords and their fees and charges reflect this. The essence of both schemes are that landlords are allowed to keep hold of the tenants deposits provided they have the appropriate insurance. The insurance covers the tenant from a landlord withholding their deposit should a dispute a rise. In this case this disputed element will be paid by the insurer to the tenant. They will then seek to reclaim these funds from the landlord. The costs for the Tenancy Deposit Solutions Ltd are as follows:
|NLA members||Non NLA members|
|Scheme Joining Fee (per landlord)||£47.00||£58.75|
|Protection Fee (per deposit)||£26.00 (first 4 deposits p.a., £30 thereafter)||£30.00|
|Annual Scheme Renewal Fee||£14.70||£14.70|
Fees include VAT at the applicable rate
Which scheme should I choose?
For most small landlords with say 1 or 2 properties the best alternative is probably the custodial scheme run by the Tenant Deposit Service (DPS). This is because with the current Base Rate being at 5.25% you should receive just under 3% pa interest after DPS take their 2.32% cut. At this rate a landlord would have to hold deposits above the value of £1389 to earn sufficient interest to cover the annual charge in insuring just one property i.e. £26 + £14.70 = £47.70.
If two properties were involved where an additional charge of £26 is required the amount of deposits required would be more. All this excludes the one of charge of at least £47 to initially register with the scheme. Landlords that take high value deposits currently over £880 and have larger portfolios will be better of using the insurance backed Tenancy Deposit Solutions scheme and retaining all the interest from the deposits.
However, landlords should remember that the situation is fluid and that if interest rates fall; then the size of deposit required to make the insurance backed scheme economic increases and visa versa. They should also ensure that their tenancy agreement such as the FREE AST provided by Property Hawk allows them to retain any interest accrued .
Landlords will be expected to make detailed inventories at the commencement of any tenancy and provide evidence of damage at the termination to support any claim. The cost of referencing and the insurance fee above can be charged to the tenant as an admin fee.
We will be investigating the specific insurance products for TDS over the coming weeks.