Turmoil facing private lettings industry in Scotland

Tuesday 29th May 2012

A significant number of lettings agents in Scotland are forecast to go to the wall as the result of a twin whammy.

First, they are under pressure from the charity Shelter Scotland’s Reclaim Your Fees campaign, aimed at helping tenants reclaim fees from their agents. Shelter insists that up-front fees such as ‘administration’ fees and reference checking fees are illegal.

One tenant, Scott Kuku, has won his case in the small claims court against an Edinburgh lettings agent to whom he had paid administration fees. He has since urged others to follow suit and Shelter believes at least 60 others in the city are set to do so.

The Scottish government has just finished consulting on the issue of tenancy fees, and is likely to clarify the law – and, say campaigners, put a clear ban on all tenancy fees in future.

Graeme Brown, director of Shelter Scotland, said: “We want the Scottish Government to explicitly clarify legislation to make it clear to tenants, landlords and their agents that all charges above rent and a reasonable deposit are unlawful.”

But the second whammy facing Scots landlords and agents could be a tsunami – the new tenancy deposit protection legislation coming into force this summer.

This will be retrospective, meaning that Scottish agents and landlords who have already taken deposits for ongoing tenancies will have to hand the money over to an approved tenancy deposit scheme

In England and Wales, when tenancy deposit protection was introduced, it applied only to new tenancies created after a certain date. That is not the case in Scotland. Moreover, in England and Wales, insurance-backed protection schemes are allowed, meaning that actual cash does not have to be handed over at all.

In Scotland, insurance schemes are not allowed. Thus, actual money must be handed over for banking, prompting fears that the change could force some letting firms and landlords out of business, if they have been relying on the money for cashflow.

The big question is – will they disappear into the night, taking their tenants’ money with them? If so, was this possibility considered by the legislators, or could it be an unintended consequence of good intentions?

Furthermore, if the letting firm disappears or folds, will aggrieved tenants hold their landlords responsible and pursue them in the courts for their money?

John Blackwood, director of the Scottish Association of Landlords, agrees with this scenario.

He said: “We suspect that a lot of small agents will simply disappear because they haven’t been able to make sufficient provisions for the deposit scheme.”