“Insured” deposit protection schemes have found themselves caught up in the story of an unscrupulous letting agent.
Channel 4 News ran a story last week explaining how rent-to-rent agent Daniel Burton managed to disappear with tens of thousands of pounds owed to dozens of tenants.
Burton owned an agency called Unida Place which shut its doors last summer owing hundreds of tenants deposit money.
Burton had complied with the law by registering deposits with one of the approved protection schemes, MyDeposits. But it has transpired that Burton was later expelled by MyDeposits for failing to comply with its procedures. On his expulsion the deposits ceased to be protected.
Channel 4 reported that following his expulsion, MyDeposits wrote to Burton's tenants telling them they had three months before their deposits became "unprotected" and the expelled letting agent was left with £145,000 of unprotected deposits sitting in a bank account. He subsequently failed to repay many renters money due when they left their accommodation.
However, CEO of MyDeposits Eddie Hooker told Channel 4 News that the scheme was simply following the rules set out in the relevant legislation.
Under the Housing Act 2004 all three insurance-backed schemes (MyDeposits, the Tenancy Deposit Scheme and the Deposit Protection Service) are required to terminate memberships if a breach of the rules occurs.
The Deposit Protection Service also runs the only custodial scheme – which doesn’t expel members.
Alex Hilton, of Generation Rent, told Channel 4 News the system was failing to live up to its name: "It's a tenancy deposit protection scheme – they have told people that their deposits are protected: they've got to protect the deposit,” he said.
Where a tenant’s deposit has not been protected properly – whether at all or after expulsion from a scheme – the tenant can take the landlord to court and be awarded up to three times the deposit amount as compensation.
Whether the Government plans to close the loophole in the legislation regarding expulsion remains to be seen.
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Comments
A correction to the journalism above:
"where the tenant’s deposit has not been protected properly – whether at all or after expulsion from a scheme – the tenant can take the landlord to court and be awarded up to three times the deposit amount as compensation."
This should read "be awarded the return of the deposit + up to 3 times the deposit amount..." which is 25% more painful for the landlord. It should also be noted that it is the landlord who is held liable and not the agent who may have issued the deposit paperwork and mis-guided their client
There is no lophole to close.
The only safe scheme and the only one needed has ever been DPS because then the money is held by a third party. If you want protection why let an agent or Landlord hold onto it.
The insurance cover required by the Statute is solely to enable an insured scheme do what it was set up to do - insure deposits and adjudicate on disputes.
When a dispute arises the disputed amount, whether going ADR or via Court, must be paid into the Scheme to hold.
That is what is insured and the insurer only pays out if at the time of the dispute the money has gone walkies and./or the agent refuses to pay it in (for some bizarre reason as that would leads to expulsion).
TDP was never brought in to protect deposits in some lettings equivalent of ABTA or ATOL - in fact the 2004 Act doesn't even require you to ever "protect" the deposit - read section 213 and does not even use that word