Tenancy deposit law should be totally revised, says expert

First I need to say that I am now a Regional Representative for NLA but today I am posting as a landlord of 36 years and as a past member of the National Federation of Residential Landlords
At the time tenancy deposit protection was first being discussed at government level I was a member of the Executive of the NLFR. I took on TDP on behalf of NFRL and the landlords of England. We had already communicated with landlords in Australia and asked what the downside was to their custodial scheme - there was no other option open to them. We were told that the scheme was too "closed shop", too big and took too long to return undisputed monies claimed by landlords. We were told that the tenant who had left owing rent and had caused damage, knowing that he would not be entitled to the return of his deposit, went away without signing the monies out to the landlord. Overall we were concerned that a custodial scheme would add considerably to the workload of landlords and would have a serious adverse affect on our cash flow in the cases where there were rent arrears and damages to be dealt with before we could re-let.
I put together a report on an option. The option was an insurance based scheme - success has many mothers and I am sure that there are many who will claim to have given birth to this idea but perhaps John Daniels, the then senior civil servant at Eland House, will remember the day I presented my idea to him on behalf of NFRL?
The government agreed to include this option in the legislation. I was tasked to find an insurer to underwrite the scheme for NFRL. None would do it. I held the name Tenancy Deposits Ltd and the email addresses and tried very hard to find an underwriter for this scheme. It was too high risk because the perception was that there would be thousands of cases to arbitrate and the costs would be enormous. Why would we need this legislation if this were not the case? If landlords and tenants could reach agreement what was all the fuss about? I failed to find an underwriter and NFRL did not bid for this business.
NLA however, working with their insurer, took a different view. NLA were so confident that arbitration would only be needed in the rare cases where agreement could not be reached that they put in a bid for this business and the rest is history as they say. At this time I was just a member of NLA and I had no idea that they were in the picture, they did not even approach me about the company name or web address hence MyDeposits which could have been simply Tenancy Deposits.
So here we are 2010 and having taken the risk NLA have been proved right and the overheads are much less than originally perceived. The custodial scheme NEEDS to be a completely separate scheme and I am certain this government will see that. As consumers even landlords should have the right of choice and if we choose to PAY a fee, out of our own pockets because we cannot pass this fee on to tenants, rather than use a FREE scheme I guess that justifies the need for the insured option - I'm proud to have been a part of it.
What I am hearing is that interest’s rates are low and the business plan was so flawed that the custodial scheme cannot make ends meet and needs the funds from those who choose to insure to make up the deficit. Do I really want to deal with a company with a government contract and a turnover of this size who cannot get its costing right? Do I want to be compelled to deal with only one company and have not choice?
This legislation was unnecessary and the low number of complaints proves that to be the case but we have got it now and I for one can live with it if I have a choice of provider and service. If it becomes Big Brother my guess is that some landlords may find a creative way of avoiding it all together.

• 23 July 2010 15:58 PM

Laurie

You have had a clear and open offer to discuss the issues face-to-face with the CEO of my|deposits.

The scheme is an open book and is interested and keen to hear your solutions to supposed 'problems'.

Simply avoiding further discussion is a very unusual strategy. And as for the (not very) veiled threat, I think it probably says everything that needs to be said.

If you don't wish to discuss the facts then that is clear. But you clearly have a conflict of interest and that is now out in the open.

I look forward to engaging with you again on EAT and elsewhere.

• 22 July 2010 14:34 PM

Steve,

Probably best if we draw a line under this before it becomes unpleasant. I stand by everything I have said. Leave it there .....

• 22 July 2010 12:27 PM

Oh dear, Laurie, descending into personal attacks on people's characters. I'm not sure that really helps your case.

1. Ellie Irwin was the Press Officer for my|deposits and has now moved to the same role at RICS. Facts are not your strong point, it would seem.

2. No post from the NLA and my|deposits has ever claimed to be anything other than what it is: a defence of the concept of a working insurance-based TDP scheme.

3. So can you confirm that you are not (and have not) been advising DPS (paid or unpaid) on a insurance-backed proposition? This is very much of interest to all EAT readers who have a say about the future of tenancy deposit protection. It is of interest to the industry because you claim to be wholly independent. You are not free to come out and say 'change everything' unless you are upfront. And questions will continue. Readers are well aware from where I am coming from as I make it 100% clear. Your turn.

4. A good paregraph from you and oh so humble:

"Over the past five years, well before you or your employers were ever involved in TDP, I have always promoted the concept of a single, national, industry independent, TDP administrator, operating in conjunction with a single ADR (preferably with Statutory provenance) providing both ‘custodial’ & ‘insured’ versions. My / NALS original TDP consortium comprising Capita and the Housing Ombudsman with Lumley's / me providing the insurance input and NALS as the entry portal into the ‘insured’ element, is proof. It would probably have been the best scheme never to have existed."

It is quite clear that the Government did not agree with you and was not willing to take your advice. Sour grapes?

5. Would you be willing to talk to an existing insurance-backed provider about the possibility of a custodial scheme?

I can confirm today that Eddie Hooker, CEO at my|deposits, has instructed me to publicly offer you a meeting to discuss your concerns about the my|deposits business model, insurance-backed TDP and a potential custodial scheme. He would be happy to publish the full transcript of that meeting if you so choose, including your concerns and his responses.

***A small point. If one is willing to make comments for the media in the public domain then you can expect them to be scrutinised and investigated. Open discussion is an important part of our democratic process. And, in the coming months, you will have every opportunity to put your case to CLG as the contracts for TDP come up for renewal.***

Let's try and keep this professional. And calling a PR person irritating is seen as a feather in the cap nothing worse.

• 22 July 2010 10:26 AM

Steve,

You really are dangerously irritating and I am becoming seriously annoyed at your continued reference to my needing to ‘come clean’. Your hypocrisy is breathtaking, particularly coming from someone who presumably, encouraged ‘Ellie’ (if that is her real name) to promote the interests of my|deposits on EAT postings whilst pretending to be an unrelated industry professional.

For the record, for the last three years I have been an independent PRS consultant who is not now and never has been remunerated by DPS, but even if I had or were to be so in the future, I don’t consider it to be any of your business or, for that matter the trade association or TDP provider that you apparently represent. Your ‘presumption’ that I would involve Letsure / Barbon in anything I may or may not be working on is, frankly, laughable.

Over the past five years, well before you or your employers were ever involved in TDP, I have always promoted the concept of a single, national, industry independent, TDP administrator, operating in conjunction with a single ADR (preferably with Statutory provenance) providing both ‘custodial’ & ‘insured’ versions. My / NALS original TDP consortium comprising Capita and the Housing Ombudsman with Lumley's / me providing the insurance input and NALS as the entry portal into the ‘insured’ element, is proof. It would probably have been the best scheme never to have existed.

Moving forward, I will continue to promote that concept and if it were to be of interest to either the existing ‘custodial’ provider or, any organisation that may wish to enter a future CLG TDP tendering process in the future, so be it.

• 22 July 2010 09:26 AM

Just so people are aware and for clarity's sake.

I am the PR at the National Landlords Association which owns 50% of my|deposits.

• 21 July 2010 17:02 PM

Some further thoughts.

1. Laurie, once again, you have to declare your interest. Are you or are you not working with the DPS advsing them on an insurance-based proposition? I presume Letsure is the insurance partner? Come clean please...

2. I presume this super-protector would solve the problems you outline?

3. Does one supplier create a monopoly? Is it actually needed? Just because Australia has one supplier and it works does not mean that having three cannot work.

4. DPS is working. my|deposits is working. TDS was failing because the business model was not robust from the outset. The pricing was wrong.

5. If CLG are REALLY concerned about saving costs, then perhaps considering stopping underwriting the DPS. They are underwritten with low interest rates and make profits when interest rates are high. Is this fair competition? No.

We need a serious discussion about the legislation and about the schemes. But let's stick to the facts not the fiction.

• 21 July 2010 16:57 PM

The question will be whether the Housing Minister agrees with Laurie or not.

I suspect that he has his hands full in relation to homelessness and home-building.

The contracts will need to be examined in the not too distant future and I'm sure every opinion will be taken into account.

• 21 July 2010 16:23 PM

Mr Dillamore who hasn't got a clue. Anyone who claims that the current system works extremely well and gives good protection to Landlords and Tenants must be living in a different world to me.
Tenants can make whimsical challenges to any deduction from their deposit knowing that it is neither sensible or economic to fight a vexatious claim under £500.
An agent has a legal duty to act in the best interest of the landlord, the current system of deposit protection simply prevents agents from fulfilling that legal duty without incurring unjustifiable time and financial cost.

• 14 July 2010 10:22 AM

Australia as far as I am aware also has no private letting by anyone it all has to go through agents. Either there or USA, and they have to be qualified and regulated. If I am wrong that is how it should be. We all worry about all sorts of things - housing is a basic feature of life (or shelter as Maslow ut it in his hierarchy of needs). If I can't sell you a pension, do an MoT on your car or surgery on your own bodywork why on earth can I just meet someone down the pub and rent a house to them which could be a death trap? All that is needed is one scheme - Custodial - and a few sensible tweaks such as the blindingly obvious minimum referral amount for a dispute. The tenant being up to date with their rent before they can go to free ADR might be useful anyway. And no the right to set off does not need to automatically apply.

• 13 July 2010 10:21 AM

1) Since it was the previous government that placed the onus on the tenants to ensure a landlord’s (or agents) compliance with the provisions of the TDP legislation, I would argue that the Coalition have a duty to ensure that the establishment of inclusion under the scheme should be as easy as possible. Therefore, one scheme.

2) The perception of justice and the fair determination of a dispute can never be secured within a ‘competitive’ environment, particularly where the two ‘insured’ schemes are owned and promoted by landlord & agent organisations. Therefore, one scheme.

3) Tessa is absolutely right, my understanding (from my daughter who lives in Australia and rented for some years before recently buying her own house), is that the single scheme actually operates extremely well.

A single ‘institutional’ scheme provider, either holding deposits themselves or possibly ‘licensing’ others in a fully controlled financial environment is, I believe, the best way forward.

• 13 July 2010 08:27 AM

In Australia, so far as I am aware, they only have the one scheme, and this works reasonably well. It has been running about 8 years longer than ours.

• 12 July 2010 19:36 PM

As far as I am concerned as an agent the system as it stands works well is fair and relatively simple to use.

If a tenant is confused all he has to do is ask the agent/landlord which scheme will be used before he enters any binding agreement. If he is not happy there are plenty of other properties, agents and Landlords to choose from.

The idea of only having one scheme is a recipe for disaster. You cannot put all deposits with one single organisation, (even if it is guaranteed by the government).

In my view there needs to be competition. Landlords, agents (and possibly tenants) should have a choice of schemes available to them.

If anything more schemes should be encouraged not less.

• 12 July 2010 19:14 PM

I completely agree. The current system is in need of an overhaul. Lets not forget The Dispute Service Ltd debacle! We need working business models and a fairer system. Mr Dillamore has the expertise to do this and has my full support.

• 12 July 2010 14:04 PM

ace, if you actually read the article you would see that I fully support the concept 100%. TDP in its generality does indeed provide much needed protection for landlords and tenants - just as the legislation intended.
The problem is that no one anticipated during the procurement phase that you would have
A) a 'not for profit' scheme devised by letting agents trade bodies which took the concept so seriously that they may well go out of business having virtually already gone bust once. Indeed they have already called for changes to the TDP rules themselves.
B) A facility that was clearly designed for direct landlords functionality (no agent), which now 'accommodates' some of the largest letting agents in the country - the upshot being that it is rumoured to be massively profitable, as the agent risk profile is entirely different to that of direct landlords.
C) We then have a free to use 'custodial' scheme funded from interest earned on deposits held which may have its own 'not for profit' problems, as interest rates were above 5% when the procurement was undertaken - they are now 0.5%.
Three schemes, three ADR's, three different approaches regarding dispute determinations, thrre different evidential expectations, three companies for CLG to monitor, three organisations for a tenant to check with to establish if their deposit is protected. Then, just to cap it all, one of the main ‘benefits’ perceived by the previous government during the formative period was the significant data that the schemes would provide that would enable central government to identify, monitor and plan housing policy. All the schemes had to provide for systems to enable data availability at not inconsiderable cost – within 18 months CLG abandoned the initiative.
I don’t have the foggiest? – sorry, we will have to agree to differ on that.

• 12 July 2010 13:17 PM

Mr Dillamore really hasn't got the foggiest about what he is talking about.

The current system works extremely well and gives good protection to Landlords and Tenants

• 12 July 2010 12:24 PM

Well said Rebel and the Courts would not be tenant slanted as the present set up is!

As to Ric's wish for more red tape & licencing I suggest he asks how many Solicitors go to Prison as compared to Estate Agents. He will find hardly any Agents and plenty of Lawyers!!

• 12 July 2010 12:06 PM

The scheme only works if agents comply, but rogue agents can escape the red tape and will continue to do so until compulsory auditing or licensing

• 12 July 2010 10:32 AM

The only reason we seem to need these daft schemes is because the legal system & its costs have grown ridiculously. If the small claims process was faster & cheaper, disputes could be resolved that way, deposits could still be held by landlords & paperwork reduced. Codes of practice, OFT inteference, bureaucracy & licensing sprout from a legal system that has become detached from everyday life & unaffordable for most.

• 12 July 2010 09:45 AM