A NEW era dawns in Scotland’s rental market tomorrow with the launch of the first deposit schemes aimed at reducing conflict between tenants and landlords.
The landmark legislation is designed primarily to tackle the biggest source of grievances in the private rented sector: withheld deposits.
Experts warn that tenants could ultimately end up paying more as landlords pass on the costs of complying with the new regime, while some letting agents claim the rules are unnecessarily heavy-handed.
The new system, similar to that already operating south of the Border, requires any deposits paid to landlords to be transferred to an approved scheme within 30 days of the tenancy starting, among other demands.
The first schemes – Letting Protection Service (LPS) Scotland, MyDeposits Scotland and SafeDeposits Scotland – start tomorrow, although landlords have until November before they are legally required to pay deposits into a scheme.
Kevin Firth, director of LPS Scotland, said: “The schemes could save Scottish renters somewhere in the region of £2.3 million to £3.6m a year, and following the success they’ve had across England and Wales I believe they will have an extremely positive effect on the Scottish rental market.”
Here’s the lowdown on reforms set to affect hundreds of thousands of Scots – many of whom remain unaware of the changes.
What is it?
The new tenancy deposit legislation makes it compulsory for landlords and letting agents to protect tenant deposits with an approved third-party scheme. An estimated 224,000 households will be affected by the regulations.
Why do we need it?
Up to 11,000 tenants have all or part of their deposits withheld every year, according to research by the Scottish Government in 2009. Anecdotal evidence suggests disputes over deposits have increased since then, thanks partly to the rise of inexperienced “reluctant landlords”.
Deposits were also a key factor in a 40 per cent rise in Scottish complaints about letting agents last year, according to the Property Ombudsman.
The rules also protect landlords from tenants withholding the last month of their rent in lieu of their deposit.
Firth said: “The new legislation will go a long way to giving tenants, landlords and letting agents the reassurance that deposits are secured properly and the return of money at the end of the tenancy is structured and fair.”
But some letting agents believe the new rules are akin to using a sledgehammer to crack a nut and claim the schemes could cause as many problems as they solve.
What exactly does it involve?
Landlords will be obliged to give the tenant confirmation of the amount paid in deposit and the scheme in which it is held. They must also provide proof of registration with their local authority at the time of paying the deposit.
The money will be held by the scheme administrator in an account set up for the purpose, and an independent dispute resolution service will be on hand in the event of disagreement over the return of the deposit.
How will it affect tenants?
The obvious benefit is tenants can be more confident that unless they have created good reason for it to be withheld, they will get their deposit back at the end of the tenancy.
Julie Grieve, managing director of Braemore Property Management, said: “They will now know that any deduction from their deposit has been fairly made by impartial adjudicators. This provides welcome clarity and transparency to the process for all sides.
“However, there needs to be a process of education for tenants. There is certainly a disconnection between a tenant’s view and a landlord’s view of what constitutes a reasonable reason to make a deduction.”
While the new schemes will help highlight rogue landlords and agents, it is up to the tenants to report cases where they are being unfairly or incorrectly treated, said Grieve.
The big concern is that rents – already climbing – could become even more expensive as a result of the new rules.
The scheme is free for landlords and letting agents, but many will seek to supply more detailed inventories and condition reports, and the associated costs may well be passed on to tenants.
Chris Blair, director of Onside Inventory Management in Edinburgh, said: “It is an additional cost for the landlords of residential private rented property and undoubtedly landlords and letting agents will endeavour to recover this additional cost by trying to increase the rent.”
How do I get my deposit back?
When your tenancy ends, the landlord will have to apply to the tenancy deposit scheme for the deposit to be repaid. The scheme will contact you to check you agree with the amount being returned. If you do, you should get the money within five working days.
You can apply to the scheme yourself if you believe the landlord has failed to ask for repayment of your deposit.
Tenants may find it takes some time to get a deposit released in some cases. If a landlord wants to provide evidence suggesting it should be withheld, the money could be held for several months while the dispute is settled.
If you want to use the dispute resolution service provided by the new system, you have to tell the scheme administrator within 30 days.
What does it mean for landlords?
The responsibility for tenancy deposits lies with landlords, even if they use a letting agent.
Deposits received before 7 March 2011 have to be paid into a scheme within 30 working days of renewal, if that occurs between 2 October 2012 and 2 April 2013, or 15 May next year in other cases.
Those paid on or after 7 March 2011 but before 2 October 2012 must be registered by 13 November 2012, the date by which all deposits have to be transferred into a scheme.
Deposits received on or after 2 October 2012 must be paid in within 30 working days of the beginning of the tenancy.
Letting agents have warned that many landlords may struggle to cope with the compliance work involved.
Grieve at Braemore said: “The increase in administration will hit the smallest agents and landlords hardest and will undoubtedly squeeze margins, as the only other option is to increase rents.
“There is also the growing category of reluctant landlords who have been unable, or unwilling, to sell their property in the current climate. This is simply an added complication for them”.
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