Landlords to 'hand over millions' as deposit law comes in

Friday 27th April 2012

Tens of thousands of Scottish landlords will collectively need to find £100.9m this year to pay into the new tenancy deposit schemes.

An estimated £21.5m will have to be found by Edinburgh and Glasgow landlords and agents alone.

A number of landlords and agents will have been using the deposit money as cash flow, and the Property Ombudsman has already warned that some Scots agents will go bust as a result of the new law.

The new legislation comes into play in July and landlords who have already taken deposits from tenants will have to hand them over between then and November in order to comply with the law.

Unlike England and Wales, in Scotland only custodial deposit schemes will be allowed, and these will act as independent bankers of tenants’ money.

According to rental property firm Lomond Capital, an estimated 224,000 rented households stand to be affected by the new regulations.
 
It says that while ‘many’ well-run agents and careful landlords will have been holding deposits in separately funded client accounts, it is also recognised that using tenant deposits as working capital has been standard practice for some landlords and agents.
 
The scheme officially becomes operational on July 2. Under transitional arrangements, deposits on ongoing tenancies must be transferred over to the new scheme by November 12.

Stuart Pender, chief executive of Lomond Capital, said: “The new tenant deposit scheme will not come as a surprise to agents and landlords, but the short time period in which it is necessary to transfer funds could still present significant issues for some.
 
“Many of Scotland’s landlords are not large organisations with multiple properties in a portfolio. They will need to be aware of the potential impact the scheme could have on their working capital and the impact on an agent will be magnified even more, due to their size. 

“Even a relatively small agent managing 300 properties is going to have to pay across around £200,000.
 
“Landlords must ensure that they, or their agents, have the funds available to transfer their tenants’ deposits.”