Tenancy deposit schemes have come under attack in a new report by one of Britain’s most respected housing commentators
Michael Ball, professor of urban and property economics at the Henley Business School, said they are poor value for money, with the costs “vastly” outweighing the benefits.
He claims they cost over £275m a year in fees and administration, but only £7m is returned to tenants annually in deposits judged to have been unreasonably upheld.
That means the net benefit is minus £269m.
Ball also said that the schemes do not necessarily protect tenants at all: “One scam is to claim that deposits are protected when they are not.”
Ball also attacks landlord registration schemes such as the blanket licensing scheme in Newham.
He says that rogue landlords avoid them, while they merely add costs for the compliant ones. He describes them as costly and ineffective.
Ball’s study, ‘The impact of regulation on the private rented sector’, commissioned by the Residential Landlords Association, also says:
- The worst landlords are unlikely to co-operate with current legislation as they are simply “unfazed” by the prospect of facing punishment.
- Landlords surveyed for the report support regulation to drive out rogue operators. But they find the current system unfair and burdensome and say it doesn’t help them deal with problem tenants.
- The poorest tenants and the most affordable properties are the worst affected by the costs of regulation.
Ball said: “Regulation has a perverse effect of raising better landlords’ costs but not those of poor ones, because unscrupulous landlords continue to ignore legislation and so face no costs of it.
“Therefore, paradoxically, regulation can worsen the position of better landlords and thereby leave more of the market to bad ones.”
The report recommends an extensive cost benefit review of all current and future regulation.
Alan Ward, chairman of the Residential Landlords Association, said: “I would urge the government and opposition to listen to Professor Ball’s findings.
“Given that there are over 400 different regulations applying to the private rented sector, a cost / benefit review of all of them is needed to ensure that we have effective regulation which is not placing an unnecessary cost burden on landlords and tenants.
“At the local level, a system of co-regulation would enable landlords to join an industry-led accreditation scheme that would use strong sanctions such as independent property inspections as a measure of deterrence against poor practice.
“This would give councils the freedom to target non-members who do not act within the remits of the law.”
Full copies of Professor Ball’s report are here, with the particularly hard-hitting section on tenants’ deposits schemes starting on page 25:
Comments (17)
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The Professor’s on point here and we shouldn’t have to suffer fools or rogues so forget the rhetoric, we don’t need to scorch the earth to fix this particular problem, just target regulation and enforcement.
We can b*tch about our costs but tex me when you find a sympathetic ear because DPS is free so you makes your own bed. Seriously though, deposits are held as security and not as some blindfolded hostage, bound and gagged. Put that beautiful mind to work and realize why.
We need to lose the siege mentality and set phasers to stun because deposit protection is not the enemy, it’s therapeutic and good for the complexion. Meantime look after your clients by letting due diligence, independent inventory and inspections do their thing and quit crying over the odd coin down the back of the sofa.
I saw nothing wrong with the old system of holding the deposit as Stakeholder rather than landlord's Agent. That way the parties had to agree or go to court. So much easier.
Interesting opinion – however the question I would ask is "A waste of whose money?"
How many tenants would lose out if it weren't for these schemes? Add in the cost that we used to incur dealing with ongoing disputes ad infinitum and before we had ADR.
I hear a number of agents complain that the schemes favour tenants. I have found that once you accept that the deposit is the tenants money, you simply need to properly evidence that proposed deductions are fair and equitable. Many of the agents that complain simply do not submit sufficient evidence on time.
I sincerely believe they provide an excellent service and bring a swift resolution to disputes in the majority of cases.
As an agent for the landlord Eric why are you too concerned about your customer's customer's interest. You can't be all things to all people so shouldn't agents look after their clients and their own interests and let the Tenant either fair for themselves or pay a professional to look after their interests.
By definition Tenants are adults and in the same way as home owners can expect to shell out on professional legal advice when buying a property I think it reasonable for a tenant to pay for legal advice when renting. Perhaps I am out out touch with reality but I don't recall any case law that says tenants are a special case and the whole world needs to pander to their needs free of charge.
@ampersat "but I don't recall any case law that says tenants are a special case and the whole world needs to pander to their needs free of charge"
You imagined that. I didn't suggest it. However…
Where you act as stakeholder, a tenancy deposit bond held by any agent is being held in a quasi -trustee position on behalf of BOTH parties – hence you have a duty of care to both landlord & tenant. You can't opt out of this by saying "I work for the landlord so you are on your own."
Also, I subscribe to the TPOS code of Practice – s12d states: "Irrespective of how the tenancy deposit has been held by you, where you are subsequently contractually involved in negotiations between the parties at the end of the tenancy, you must communicate promptly, regularly, politely and fairly." The key word is 'fairly'.
14a " Your duty of care and obligations are to your client landlords to whom you must offer suitable advice to meet their needs and aims. All parties involved in the transaction both
applicants and tenants must be treated fairly and with integrity."
My being fair to both parties as required, you can prevent a great deal of problems. This isn't a conflict – it's decent, sensible and professional best practice.
Regards
EW
Sorry, you are wrong Eric above all else you are paid to professionally service your client and it is not best practice to shell out your or your landlord's cash to resolve issues that a tenant or your staff's failures have created.
Are TPOS, ARLA, NAEA, RICS, Deposit Scheme providers, CLG, etc., all wrong as well? Tenants pay fees too – we have a duty of care to be fair to all.
That's one of the problems, Ampersat. It costs them nothing to make a claim.
I was only listing the basics required, and I do feel there is a need for an Adjudication service – TDS do a very good job of this – but it should not be free for the tenant to use. Personally, I feel there should be a (reasonable) charge divided equally between the landlord and tenant (regardless of the outcome).
A fee for registering and protecting the deposit, and another fee for adjudication when it becomes necessary.
And yes, there have been occasions we have "taken the commercial view" and paid something off rather than continue the argument, but only very occasionally. I still think the adjudication option is very good. In fact, it's the only bit of the regulations that does me any favours at all!
Personally I can see no benefit in holding a deposit. When interest rates were 10 and 12% and the Bank manager existed and was older than me, having £xxx thousand pounds in a non interest bearing Client account meant the firm did not pay bank charges.
Realistically now with the costs of administering scheme and the penalties and disadvantages for both Agent and Landlord I can see do justification for handing a Royal Flush to the tenant and Agents trying to bluff the game with three of a kind. The deposit legislation hands every advantage and excuse to a tenant with no real benefit financial or security to the landlord or their Agent.
Hello Nancy, it is nice to see new faces appearing on PIE and making informed and intelligent posts! It is funny you mention the database possibilities for tracking tax evasion and money laundering through property rentals. I have a bit of cream Vellum from Westminster stating that such an opportunity is of no interest to HMRC or the OFT. One thing to bear in mind is that it isn't just tenants who don't sometimes have the right to be in the country. It is rumoured that cash from families and connected persons from places such as Libya and Iraq have portfolios hereabouts so it staggers me that HMRC are not interested in where all of the £33 Billion annual rent role is going and that the OFT aren't concerned whether it is being used to grow flowers in Columbia or Afghanistan. I suppose it is enough that our authorities can chase agents for not being on the ball with their AML procedures.
I agree with that MF but would question how an adjudication service would resolve the main problem of the legislation; the cost of resolving minor repairs and replacement disputes. It costs the tenant nothing to dispute a claim but in reality anything under £500 needs to be written off by the landlord because the cost of resolving the dispute outweighs the cost often by considerable margin.
A 5 month once a week discussion and multiple letters and site visits over a £150 invoice is one example I can quote to you. The tenant claims there is a problem with the drains, the landlord says it is the upmarket toilet products that won't liquify in water causing the problem. My time alone is beyond £150 so to put an end to the dispute I am better of paying the invoice than have the case drag on and on.
Protecting the deposit is one thing giving tenants inequitable authority to shirk their liabilities is another.
Well, in the beginning of the deposit scheme we all thought it was just a way for the government to track undeclared tax. Its a great way to build up a data base as they know all the landlords and properties and who tenants are throughout England and Wales. Lets hope they don't leave that one on a train or if they do I am there to build up my data base!! I agree with the above article that it is just a colossal waste of time. It causes more aggravation for legitimate landlords and those that are unscrupulous still get away with all manor of things. After all if your tenant is illegally here in the UK they are not going to complain.
Whilst I have seen "good" come of the TDS scheme, the overall regulatory burden, and its huge penalty of up to three times the value of the deposit, for even a minor administration issue, being payable to the tenant is, frankly, utterly stupid. The courts should surely have had some discretion in the matter, and any penalty should have NOT been payable to the tenant. Cover their loses by all means, but don't give them an incentive to make something out of what could very well be nothing.
And all this nonsense of re-serving PI over and over and over….!
Tenancy deposit regulations are, to my mind, a good idea but which has been poorly thought out and badly executed.
A tenant's deposit should be protected 100%.
PI should need to be served ONCE on each tenant.
An adjudication service should be available.
Can't think that we need much more than that.
Before TDS was introduced the problems were apparent, once it had run for a year the problems were obvious and when they weren't resolved 12 months later change became a necessity.
Perhaps now the problem is being recognised by academics people will start to listen to those with coal face experience who recognised the issues from before the legislation was introduce in 2007 and devised a solution to an apparent then obvious need.
The property industry is quite rightly conservative (small c) not much should change but when ill informed government departments impose unnecessary change it is a rare thing for those changes to be practical or effective.
Over the years a lot of good sense has come out of the RLA!