Stuart Pender: Tenant Deposit Scheme will alter the letting industry

A MAJOR shake-up of Scotland’s lettings industry – in the form of the Tenant Deposit Scheme – comes into force in July, meaning that tens of thousands of Scottish landlords will collectively need to find more than £100 million to pay to the administrators, appointed by the government.

Despite the scheme officially launching in just two months’ time, there does not seem to be widespread awareness of the potential impact it could have.

The regulations have been created to safeguard the rent deposits of tenants. Historically, some deposits were unfairly withheld at the end of a tenancy and there have been well-publicised cases where a letting agent disappears or goes bust and deposits have been lost. And while many well-run agents and careful landlords maintain deposits in separate client accounts, there are also those who use deposits as working capital.

Lomond Capital calculates that around 224,000 rented households will be affected across Scotland, and as much as £100.9m needs to be transferred by May 2013. There are significant financial penalties for those that do not comply.

This is a welcome initiative for tenants but it will also have an enormous impact on cashflow for the industry, particularly the short time period to transfer funds.

The Tenant Deposit Scheme monies are held centrally, which will address the risk of an agent going bust – provided they have transferred the deposits. And a dispute resolution service aims to address the issue of unfair withholding of deposits at the end of a tenancy.

The scheme also brings increased administration in terms of accepting and registering a deposit and handling disputes. Some self-managing landlords may look to an agent for support with the additional paperwork. Landlords must ensure that they, or their agents, have the funds available to transfer tenants’ deposits.

It is essential that property firms in Scotland prepare now for the launch of the scheme – both the financial and reputational validity of the industry depends on a smooth transition.

• Stuart Pender is founder and chief executive of property firm Lomond Capital.