By Mike White of Martin & Co in Norwich
When the law changed nearly 3 years ago and we saw the advent of Tenant Deposit Protection, tenants were able to breathe a little easier knowing that finally they had a means of disputing unfair deductions from their security deposit. In the first two years of the scheme over 1.5 million deposits totalling over £1.4 billion have been protected with the average deposit being £906. Inevitably though, the administration of the scheme is complicated because there is, in fact, three independent government approved scheme providers:
1. The Deposit Protection Service (DPS) is the only custodial deposit protection scheme. This requires the landlord or agent to physically pay the deposit to the DPS where the money is held until the end of the tenancy before being distributed. This currently a free service.
2. MyDeposit (previously Tenancy Deposit Solutions Ltd) is an insurance-based scheme sponsored by the National Landlords Association and administered by Hamilton Fraser Insurance Services. This requires a fee to be paid for each deposit that is protected but allows the landlord to retain the deposit.
3. The Tenancy Deposit Scheme (TDS) is an insurance-based deposit and dispute resolution scheme. This requires the user to pay an annual fee based on the number of deposits being protected.
So, who uses which provider? Both individual landlords and agents use the DPS and while it is free to use, some agents charge an administration fee to their clients for lodging the money with the DPS and then handling the distribution of the money at the end of the tenancy. MyDeposit, again used by agents and individual landlords costs £29.36 per deposit protected (where the deposit is over £300) and there is a joining fee of £57.50 although there are discounts for members of the National Landlords Association. Use of this scheme allows the landlord to retain the deposit and earn interest thereon (although at today’s interest rates, you would be unlikely to earn enough to recoup the cost of protecting the deposit). Unless you’re a multiple property owning landlord with a large portfolio the cost of using the TDS is likely to be prohibitive and it is interesting that the TDS no longer quote the cost on their website for individual landlord users. For letting agents, the fee per deposit protected is £17.62 or £21.15 depending upon which trade body the agent is affiliated with. However, discounts are available for members who submit proportionately few disputes, which can reduce the cost to a minimum of £7.05 per tenancy. Members with high volumes of dispute referral are subject to increased rates per tenancy to reflect the costs associated with their use of the service. The minimum subscription is £750 for the year. These are the new rates implemented by the TDS a few weeks ago and when read quickly, sound on the face of it quite reasonable. But the announcement has caused a huge amount of turmoil amongst the letting agent fraternity because for those agents who have used the TDS to help settle disputes between the landlord and tenant, the increase in costs has been enormous. Even having been involved in only a handful of disputes, individual agents are finding their 2010 bill has increased by five, six and in some cases up to 10 times the 2009 levels. No wonder agents are getting exercised but what will be the impact for their landlords? This will undoubtedly prompt agents to do one of two things:-
1). Either switch the protected deposits to the free to use DPS, or
2). Pass the increased cost of belonging to the TDS service, onto their clients.
Here at Martin & Co in Norwich when the legislation was introduced we took the decision to use the DPS, exclusively, on behalf of our clients and because its free to use, we wouldn’t charge an additional handling fee.
For more information please contact Mike on 01603 766860 at 13 St Giles Street, Norwich.