The Tenancy Deposit Scheme, Deposit Protection Service and MyDeposits are government-backed tenancy deposit schemes put in place to combat bad practice during the processes of holding and returning tenancy deposits.
However, the schemes have gone on to become somewhat controversial, with light being shed on various instances of landlords and letting agents manipulating the guidelines to steal millions of pounds from their tenants.
With this in mind, we’ve broken it down the five key deposit misconceptions that all landlords and agents should hear.
Nobody is saying you have to take a deposit
Firstly, and perhaps most surprisingly of all, I would say that a large proportion of private landlords are under the impression that they are legally obligated to take a security deposit from their tenants.
But it isn’t true.
As the owner of a property, if you don’t want to take a deposit, you don’t have to. One way to think of it is this: you’re a pub landlord and someone wants to have a game of darts. You might want to take a £5 deposit for the darts but nobody is telling you you have to. It’s completely your choice.
It doesn’t change tenants' behaviour
There is no proof at all that taking a security deposit has any affect on a tenant’s behaviour.
There is a misconception that people are more likely to be respectful of the property if they have handed over a deposit. Now, I can only speak for myself but I imagine it’s fairly universal, I have never found myself wandering through my flat thinking, ‘I’d better be careful otherwise I won’t get my deposit back.’ It just doesn’t work that way.
We pay it, we forget about it. Then, if we damage something we think, ‘bugger, that’s annoying, and £50 from my deposit that I’ll never see again.’ And then we forget about it again.
There are some things that landlords can do to help improve the chances of a tenant taking care of property, and that’s to make it a really nice place. If a house has mouldy walls and dirty carpets, they’re almost certainly going to act with much less care than they would if their home were decorated thoughtfully, clean and generously equipped.
Tenants don’t trash
The proof of this can be found on the TDSs own yearly report for 2015-2016. It states that they hold a total of £1,451,256,450 worth of tenancy deposits, made up from 1,186,047 deposits. It also states that the average deposit amount has risen by nearly £170 in 5 years. More alarming still is the number of claims:
In 2015-2016 there were a grand total of just 11,794 disputes.
11,794 out of 1,186,047. That works out at around 0.9%.
Less than 1% of deposits taken are then disputed.
On top of that, 57% of all disputes that did take place, were based upon the cleaning of the property. To me, that suggests relatively low level deductions, as opposed to a flat being left like bomb site. And indeed, the TDS Yearly Report tells us that one of those 0.9% of disputes was over £10, for a broken wine glass. I take my hat off to the landlord who was dedicated enough to go through the, at least, 37 day process of claiming that tenner.
So our question is this: what is the point of stockpiling all of this money?
It’s a barrier for tenants to overcome, and they are starting to distrust it.
There is an elephant in the room when it comes to the government backed tenancy deposit schemes, and that’s the news that a small minority of landlords and letting agents are taking advantage of loopholes in the regulations, stealing millions of pounds from their tenants. If this is allowed to happen unchallenged for so long, it’s no wonder that people are starting to question the ethics of the sector.
Rogue letting agents aside, I sometimes think of the Tenancy Deposit Scheme like this: it’s the equivalent of forcing everyone to drive around with £1000 in their car incase they get into an accident, rather than having insurance.
It would be madness, to be forced to have that disposable cash available in one lump sum, especially when you consider that it’s most likely never going to be required.
The sector insists that tenants are all in a financially viable situation to hand over a large amount of money; often as high as £3000. That is an awful lot for most people to afford, especially when you consider that there’s a good chance they’re yet to received their previous deposit back yet. The mindset that the financial pain of handing over the money will bring a higher duty of care is something we are actively challenging.
As a result, they very often can’t pay the deposit themselves and are forced to drop out of the deal or borrow. In all likelihood, they were going to be model tenants, paying rent promptly and taking care of the property. Also, where is that money coming from? Very often a loan, credit card or the bank of Mum and Dad. Now, they’re out there somewhere, thinking to themselves.
Is there an alternative?
So, no, you don’t have to insist on a tenancy deposit. But you also don’t want to expose yourself to the risk of paying to fix a trashed property, quite rightly, no matter how slight the chances of that happening are.
That’s why we are proud to have started Reposit. We have spent a long time finding the perfect middle-ground solution for this problem.
We do it like this: We ask your tenants for just one week’s worth of rent as a starting fee.
This way, you are still fully covered for any damage done or rent not paid At the same time, the tenant saves thousands of pounds. We also actively encourage tenants to have a duty of care to the property by keeping them liable. They break it, they pay for it. If they leave the property in good nick, Reposit's cost will lower throughout their renting life. No lengthy claim forms, quicker payouts.
What’s the catch for the landlords, you ask? None whatsoever. You’re still fully covered and it doesn’t cost you a single penny.