Is your deposit really protected?

 

I spotted an article on the BBC website this week entitled “£1m raided from tenants' deposits by letting agents”, which I thought was worth commenting on.

 

Most landlords and tenants are aware that Landlords and Agents have been required to protect deposits in an approved scheme since 6^th April 2007. What most are not aware of is that there are two types of deposit schemes which can be used.

 

Custodial Scheme

In a custodial scheme, your landlord/agent pays the deposit into the scheme and the scheme looks after it. In this scheme, the landlord or agent does not hold the money, it is held in an account belonging to the scheme, and the deposit can only be released with agreement from both the landlord and tenant.

 

There is also a dispute resolution service which helps to settle any disagreement between the landlord and tenant, and ensure that any money due is returned to the parties involved within a reasonable time frame.

 

An example of a custodial scheme is the DPS (Deposit Protection Service), which is the scheme used by Martin & Co Basingstoke. We prefer this scheme specifically because the deposit is NOT held by the landlord or Agent, and therefore cannot be “lost” or otherwise misused.

 

Insurance-Based Scheme

In an insurance-based scheme, your landlord/agent keeps the deposit, but has to pay

insurance to the scheme. This is the type of scheme being referred to in the BBC article.

 

In this instance, the money is held in a bank account owned by the landlord or agent, and the money is insured by a scheme such as the TDS (Tenancy Deposit Scheme) or My Deposits.

 

Whilst many landlord and agents hold this money in a ring-fenced account to ensure this is held securely, unfortunately this is not always the case. In the BBC article, there was an example in 2016 of over £400,000 in deposits being “lost” and several others where substantial sums were unaccounted for. The temptation for some landlords or agents to use this money in the belief “they will put it back later” can be irresistible.

 

Association of Residential Letting Agents

If your agent is a member of ARLA, they are also required to have client money protection, and provide audited accounts to ARLA on an annual basis, to ensure that any client money and/or deposits are accounted for.

 

What should I look for?

If you are a tenant or a landlord, and your property is managed by an Agent, ask them to provide proof (by way of a deposit certificate) that the deposit is properly protected. Tenants should get this automatically within 30 days of the start of a tenancy.

 

In our opinion, a custodial scheme offers greater protection of the deposit than an Insurance-based scheme, as the monies are not held by the landlord or agent.

 

Check to see what schemes the agent is a member of, such as ARLA or NALS (National Approved Letting Scheme).

 

It is always a shame when an article describes this as the sector’s dirty little secret, and where tenants or landlords have lost money due to the poor or dishonest behaviour of an Agent or Landlord.

 

For those agents and landlords who treat their responsibilities seriously, further regulation to prevent this from happening cannot come soon enough.