TDS – SIX MONTHS ON
David Lawrenson, the buy-to-let and property investment expert gives his personal views on how the Tenancy Deposit Scheme (TDS) is fairing 6 months after launch.
Landlords the Tenancy Deposit Scheme – a refresh
How are tenancy deposit schemes faring 6 months after they started?
At a recent speech I gave to a trade association, the question of tenancy deposit schemes was debated strongly – so I thought it was time that we looked at this again.
Just to recap, if you take a deposit on a NEW tenancy that started on or after 6th April 2007 in England or Wales you have to protect that deposit in one of the tenancy deposit schemes.
There are two types of tenancy deposit schemes: a “custodial” scheme where a third party holds the deposit; and an “insurance” scheme where the landlord may hold it.
You have to tell tenants which scheme they are in within fourteen days of receiving the deposit. If you don’t join a scheme, penalties include having to pay the tenant an amount of three times the deposit. Also, you will be unable to regain possession under the so-called “accelerated possession procedure”.
Now, the custodial scheme is free – the running of it paid for by interest on landlords’ deposits, whilst there is a cost for the insurance scheme option.
However, the insurance scheme does have the neat advantage that it allows landlords to hold onto the deposit (rather than pay it into a scheme as is the case with the custodial scheme). And with the insurance scheme, only if at there is a dispute at the end of the tenancy must the landlord lodge the disputed amount with the scheme.
There is just one custodial scheme at www.depositprotection.com (Tel 0870 7071707) but there are two insurance-based schemes. One is run by Tenancy Deposit Solutions at www.mydeposits.co.uk (0871 7030552) and the other is run by the Dispute Service Ltd www.tds.gb.com (0845 226 7837) and is mainly targeted at agents, though both landlords and agents are free to join any scheme.
The new schemes make it even more important that landlords do a thorough inventory at the start of tenancies, to reduce the chances of disputes at the end.
So how is it going after 6 months?
Well, latest figures from a reader survey for “Landlord” magazine show that 23% of landlords are choosing not to take a deposit at all, 49% are going for the Deposit Protection Service (DPS) (the custodial scheme) while of the insurance based schemes, the clear favourite seems to be the Tenancy Deposit Solutions scheme with 17% with the Dispute Service accounting for 1.4% of respondents to the magazine survey. Another 8% of respondents have opted for separate insurance based solutions which fall outside the formal tenancy deposit schemes.
Claims running ahead of expectations
Rather scarily, claims seem to be running higher than anticipated in the custodial scheme. Also, rather worryingly, the Residential Landlords Association report that of 2,000 claims, only three have proceeded to dispute resolution but none has yet been to adjudication. Oops! Of the 2,000 claims, 400 were ‘single’ claims, whereby either a landlord or tenant can ask the DPS to settle the deposit in the absence of the other. Again, this figure is far higher than was anticipated. (Many of the 400 claims are made by landlords after a tenant has left, owing the last month’s rent.)
Landlords should note that with the custodial scheme, they can only recover the money by filling in a Statutory Declaration from the scheme and getting it witnessed by a solicitor, which is a real pain.
Insurance backed scheme
By contrast, the process for ending a deposit registered under the insurance based Tenancy Deposit Solutions seems much easier from my experience -and I am personally surprised that more landlords have not bitten the bullet, paid the fee to join an insurance based scheme (about £30 per deposit once you have paid the small joining fee) which would at least give them control of the deposit and easier access to it at the end of the tenancy. Maybe, some are too mean to pay the fee.
Now, I am the first to say that the admin involved with the Tenancy Deposit Solutions is a bit of pain, For a start, you are supposed to write to tenants and get a deposit protection certificate signed for each deposit, and keep a copy (as if landlords and tenants have got nothing better to do!) Also, you are supposed to give a tenant’s alternative address to the scheme (though I have found they will often waive this onerous requirement.) All a bit of a pain – and it adds up to a lot of work, especially for those in the student and / or HMO market, where turnover of tenants is high, because landlords are supposed to notify and protect a deposit each time a new agreement is made and also notify the scheme if the “lead tenant” changes. (And it is because of the workload that some landlords are using alternatives such as separate insurance based alternatives which fall outside the formal schemes.) But now I have done deposit protection in the insurance schemes a few times, it’s not too bad -which is what delegates at the speech told me too.
Charging for admin
But the extra admin has a cost. So, I am now charging tenants for all the "on boarding admin" and reference checks – something I used to do for free.
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David Lawrenson is the author of Successful Property Letting – How to Make Money in Buy to Let the UK’s top selling buy to let book and runs a property investment seminar and consultancy company at www.lettingfocus.com.
Copyright David Lawrenson 2007