David Alexander comment: Why are so many tenant deposits ‘unprotected’?

In Scotland, various tranches of legislation enacted over the past decade at Holyrood have been aimed mostly at improving the rights of tenants, but which agents and landlords – for the most part – have also accepted as generally being positive.

Disputes over tenant deposits were often a nightmare for letting agents, says Alexander. Picture: contributed.

One of the more successful pieces of tenancy legislation was the Tenancy Deposit Protection Scheme, whereby rental deposits paid by tenants are now lodged with a third party, whereas in the past they would normally have been held by the landlord or his or her agent. There are three such schemes operating in Scotland, approved and monitored by the Scottish Government but operated by private sector companies, who will arrange for the return of a deposit at the end of a lease or adjudicate in the event of a dispute associated with it.

When a review of the schemes, which were introduced seven years ago, was released recently by the Scottish Government, the press (understandably) hit on the revelations that one in five private renters in Scotland had put down an unprotected deposit on their tenancy during the past five years. This led to a spokesman for one tenant organisation to state that it was “crystal clear that the tenancy deposit system right now still isn’t good enough”, warning that his organisation would “continue to hold rogue landlords and letting agents to account when they try to rip off our members”.

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Well, Hallelujah to the last part of that statement. With no barrier to entry, there are now more than 10,000 management companies offering “property management” services throughout the UK and it’s widely recognised that the level of service varies enormously. Long-term reputable agents, who have tried hard to improve the reputation of the private rented sector are as opposed to “rogue landlords and letting agents” as any tenant representative body. Although there are regulations covering the operation of letting agencies in Scotland, this does not prevent any Tom, Dick or Harry setting up business as such. I would like to see legal minimum entry qualifications – not to stifle competition but to make sure everyone operating in the sector is on the same level playing field.

The Scottish Government Review also stated: “There is broad consensus that the tenancy deposit scheme regulations continue to provide a robust regulatory framework for the protection of tenants’ deposits and the conditions for the operation of the schemes.” This comment will chime with mainstream agents. Prior to the aforementioned schemes being set up, disputes over tenant deposits were often a nightmare for letting agents and something we could have done without, given the amount of time spent on acting as informal adjudicators, because whatever we decided, one party – landlord or tenant – was bound to be disappointed.

A typical example would be the landlord seeking to retain all or part of a deposit to cover “damage”, whereas in the tenant’s eyes this was simply “normal wear and tear”. If at the end of the day a landlord decided to retain all or part of the deposit, the only option open to the tenant was court action. When deposit disputes did occur it was often difficult to decide who – if anyone – was in the wrong. But if we felt a landlord was being blatantly unfair towards the tenant, we would quietly tell him or her to take their business elsewhere.

Therefore, with “letting agents” in abundance in Scotland, it is possible to understand why 20 per cent of tenants might have had their deposits unprotected. But this begs the question: was their choice of agent based purely on price? Indeed, did they use a letting agency at all? As the government states, the scheme is “robust” in giving protection of deposits to tenants. However, to ensure they benefit from this protection, would-be tenants have a responsibility to themselves to do some basic homework prior to handing over deposit money – or ensure they use an agent prepared to make them aware of the scheme’s existence.

David Alexander is MD of DJ Alexander