TDS Explains Importance of Tenancy Deposit Protection

At Thursday’s Landlord Investment Show in London, we went along to the Tenancy Deposit Scheme’s (TDS) seminar on what landlords need to know about protecting their tenant’s deposit.

The Director of Customer Relations at the TDS, Ben Beadle, also a landlord, led the session. He opened by explaining what is expected of those renting out private homes.

“You do have a choice,” he stated. “You have 30 days to register your deposit from the day you receive it. It is also an obligation to tell your tenant about how you’ve protected their deposit.”

He explains that the prescribed information that must be given to the tenant “includes a scheme leaflet”.

He addressed landlords that may use a letting agent: “If they don’t do it, or do it badly, or get it wrong, who’s responsible? You guys.”

“Choose a good letting agent – don’t overlook this,” he advised. “Once the deadline has passed, you can’t go back – if it’s late, it’s late.”

Previously, you had to supply the prescribed information each time the tenancy renews. Beadle explained that this changed earlier this year, meaning that if you have a fixed term tenancy agreement and upon renewal, all of the information is the same, you don’t need to reissue the prescribed information.

He said that you only need to reissue the details if the tenants, landlord, premises or deposit protection scheme change.

He went on to note the difference between insured-based schemes and custodial schemes.

“There was a real misconception when the law was brought in in 2007 that landlords can’t hold deposits – you can, but you have to pay a small premium to be able to do that,” he said.

Under an insurance-backed scheme, landlords can hold onto their tenant’s deposit money, having the “flexibility about what to do with it”.

The TDS operates an insured scheme. Beadle claimed that these are “quicker than custodial schemes”.

He believes that the TDS is the best scheme in the event of a disagreement, as it allows landlords, letting agents and tenants to raise a dispute.

TDS Explains Importance of Tenancy Deposit Protection

Although “99% of tenancies end without a dispute,” explained Beadle, “you have access to dispute resolution if you need it”.

So what’s the difference between insured and custodial? If you choose a custodial scheme, “you pay the deposit to the scheme”, Beadle clarified.

“A lot of landlords prefer to keep hold of the money,” he said. “But they pay for the privilege, this is the alternative.”

For each tenancy, you must pay the deposit into the scheme and apply for it back, which can be a lengthy process.

All of the Government-approved schemes – the Deposit Protection Service (the only current custodial scheme), the TDS and My Deposits (both insurance-based) – offer a free, impartial alternative dispute resolution service (ADR) if the parties agree to participate.

Beadle then stressed the importance of protecting a tenant’s deposit. He explained that if landlords or their agents miss the 30-day deadline, they must return the deposit and could be fined one to three times the deposit amount.

Additionally, “you will be unable to serve a section 21 notice,” said Beadle.

He gave an example of a tenant owing the landlord “several thousand pounds of rent, but depending on if you protected the deposit late, you may have to pay it them back”.

But the deposit protection scheme will not “police” landlords; “it’s up to the tenant to take the landlord to court if a landlord doesn’t protect the deposit”, he stated.

So how likely is a dispute to arise? “Just 1% of tenancies end in dispute”, according to the TDS.

Last year, “we resolved just shy of 12,000 disputes,” he said. However, there has been a “25% increase in disputes over the last year and a gradual increase in the general amount that is disputed”.

Many of these disputes concern cleaning, which is “currently present in about 50% of our cases”.

But as disputes rise, there are “many more reasons why disputes are coming to the fore, more meaty cases,” claimed Beadle. He believes that small-scale issues are being resolved between the landlord and tenant.

When a dispute is reported, it is assessed on the “quality of the evidence that comes in”, said Beadle. He advised landlords to compile all of the evidence that supports their claim in deducting from the tenant’s deposit.

To avoid landing in a dispute, Beadle told landlords to keep their tenancy agreements up to date, due to the ever-changing market. It should be current and “allow you to charge for everything that you wish to charge for at the end of the tenancy”.

He also warned that a thorough inventory is the “only way to prove that the property is at a worse state when the tenant moves out”. He added that the “robust and comprehensive inventory” should be “authenticated by the tenant”.

He believes that it is better to use a third party service to conduct the inventory. However, he said that if the landlord draws up their own inventory and the tenant signs it, “the adjudicator will take it at face value”.

But what if you make changes during the tenancy? “Don’t do verbal agreements,” he stated. Any agreement should be made in writing.

If you change your mind and allow the tenant to decorate of have pets, you must “confirm your expectation for the end of the tenancy”. And if the property is left in a bad state? You must determine what the “remedy to that is”.

But again, Beadle explained the importance of collecting evidence: “If you don’t have evidence, the tenant will win every time”.

When the tenant leaves, you must carry out a “detailed check out report – this is how the property is compared to the check in report,” he explained. He also thinks that the tenant should be involved in this process for “much greater transparency”.

He finished the discussion on the controversial topic of fair wear and tear. Beadle stated that when considering how much can be deducted from the deposit, each case must be assessed individually. The scheme will look at many aspects of the tenancy – “the length of the tenancy, the nature of the occupancy (a single guy in a flat versus a family with two kids)” for example.

If the tenancy is longer than normal, five to six years for instance, or if a family lives in the home rather than an individual, it is expected that more wear and tear will occur.

The scheme will also consider the quality of the fittings and furnishings.

Beadle said: “If you have budget carpets and a five-year tenancy, you may not reasonably expect the carpets to last beyond five years.”

If you have bought good quality items for your rental property, you must keep invoices and receipts, to explain to the scheme why you are deducting more from the deposit.

“We’ll make a decision based on what we’ve got in front of us,” Beadle concluded.