An end to deposit cheats

Chris Partridge reports on a new crackdown on landlords who hang on to tenants' money without justification

Renters and landlords should find it easier to settle disputes over the deposit with the arrival of independent schemes to guarantee tenancy deposits, included in the Housing Act that became law last week. Yesterday, associations representing agents for about half of the rented accommodation in Britain came together to announce their support for the Tenancy Deposit Scheme (TDS), an independent, non-profit organisation that holds deposits and decides any disputes when tenancies finish.

Renters and landlords should find it easier to settle disputes over the deposit with the arrival of independent schemes to guarantee tenancy deposits, included in the Housing Act that became law last week. Yesterday, associations representing agents for about half of the rented accommodation in Britain came together to announce their support for the Tenancy Deposit Scheme (TDS), an independent, non-profit organisation that holds deposits and decides any disputes when tenancies finish.

The TDS will be promoted as an angel of mercy, holding on to deposits for prompt return if the tenant has been good. It is being backed by the Association of Rentals and Lettings Agents (ARLA), the Royal Institution of Chartered Surveyors (RICS) and the National Association of Estate Agents (NAEA) - the first time all three bodies have collaborated in this way.

Renters going through agents accredited to any of these bodies will give their deposit to the TDS, which will hold it until the end of the tenancy. On getting the all-clear from the landlord, it will then be returned. Any dispute will be decided by a TDS adjudicator.

If either party still feels aggrieved, they will still be able to go to court but that will be much more expensive. The TDS is still not official yet - the new Housing Act calls for bids to run tenancy deposit schemes based on various different methods.

TDS is a "custodial scheme" - it takes the money and guards it. Other schemes are likely to be based on insurance, and will appeal to landlords who deal directly with tenants, including both institutions such as universities with halls of residence and professional landlords.

The new Housing Act makes it compulsory for landlords who take deposits to use a deposit scheme. When they take a deposit, they must give the tenant proof that it has been safeguarded under an approved scheme within 14 days - and if they do not, they lose the right to give the usual two months' notice to quit. In extreme cases, the tenant can get back three times the deposit if it has not been guaranteed properly. It is hoped this will put a stop to some landlords who seem to regard the deposit as a sort of tip, which they are under no obligation to return.

Citizens Advice, which has been campaigning for the change in the law, has collected some amazingly lame excuses for not repaying tenancy deposits from its bureaux round the country. They include a woman whose landlord refused to pay back £350 on the grounds that the sink was dirty, and a tenant whose landlord charged £150 for marks on the walls left by Blu-Tack. One tenant had a faulty cooker which burst into flames. The landlord's fire-extinguisher refused to work, so he sacrificed his own dressing gown to put out the fire - and the landlord still withheld the deposit to pay for the damage.

Citizens Advice estimates that up to £21 million a year is wrongfully withheld by landlords and agents. The scheme is run by The Dispute Service (confusingly but deliberately also initialled TDS), the organisation behind a successful but short-lived pilot scheme last year. Lawrence Greenberg of this TDS believes the scheme will marginalise greedy landlords. "There will be a fringe of landlords who keep quiet and hang on to deposits, but gradually, over time, we will pick up most of them," he says. Greenberg will be bidding for official status under the Housing Act, and hopes that TDS will be the only custodial scheme. "I don't think we should have more than one scheme for regulated agents - it would be a bit like being able to choose which magistrates court you want to go to, allowing landlords to trade one off against another," he says.

Another good reason for sticking with one scheme is to get economies of scale. "A custodial scheme should have sufficient volume for the interest on the deposits to pay for the scheme," he says. "I estimate that a £1m turnover in deposits a year is needed. We hope this will be the de facto scheme as all the major institutions are behind it." According to Citizens Advice, nearly £800m is held by landlords as deposits, which would raise about £30m in interest if it were all kept in the TDS.

TDS has been up and running on a voluntary basis with members of ARLA for most of this year, having established the systems for dealing with the money and a network of part-time adjudicators drawn from local professionals such as surveyors, rent officers, inventory clerks and even a couple of solicitors. They are already in the process of deciding two disputes, Greenberg says.

The TDS will also help charities that assist the homeless in finding enough money to cover tenancy deposits. David Carter of the National Rent Deposit Forum (NRDF), which represents some 250 local homelessnes charities, says: "This is a step in the right direction. We have been in favour of national deposit schemes because so much money is lost to landlords. We will either run our own scheme or use one of the ones being set up by others."

www.tds.gb.com, www.nrdf.org.uk