Does the tenancy deposit system need reforming?
A consumer body has called on the government to reform the deposit system in the private rented sector, or seek alternatives to make the process fairer for tenants.
According to research conducted by Which?, just under a third of people moving from one rental property to another in the past two years had to pay for a new deposit before their old one was returned. Which? has described this as evidence that the deposit system is ‘broken’.
The findings revealed that 43% of private tenants have had to use a credit card, loan or overdraft, or borrow money from family and friends, to cover the cost of moving into a new property. A key part of the cost is the security deposit, with financial issues worsened by the fact that renters sometimes face a long wait to have an old deposit returned.
One in six tenants who have moved out of a rental property in the last two years said it took more than four weeks for their returned deposit to arrive. What’s more, some 55% of tenants who didn’t receive their old deposit back in full challenged this decision. The most common reasons for deductions were cleaning (50%) and property damage (32%).
In addition, Which? claimed that one in 10 respondents to its survey said they had not been informed of the reason for their deposit not being returned in full.
‘A lack of clarity’?
Which? said its findings highlighted a ‘lack of clarity’ about what a tenant’s deposit money can be used for. Some 62% of the landlords questioned as part of the survey wrongly believed the deposit could be used to cover outstanding utility bills. As a result, Which? argues both landlords and tenants need clearer guidance on the situations in which reasonable deductions can be made.
It has called on the government to ‘review deposit adjudication schemes’ to make sure they are working in the best interests of tenants, as well as providing an effective way for renters to escalate complaints made to their deposit protection schemes if complaints haven’t been sufficiently resolved in-house.
Currently, the deposit system is cash-based, and Which? has urged the government to review this and see whether alternatives – such as ‘new, insurance-style options or the direct transfer of deposits between properties’ – could be more effective and prevent tenants having to cover two deposits at once when moving between rental homes.
“The findings highlight that the deposit system is crying out for reform to make it fit for purpose for the record numbers of people who are living in rented accommodation,” Alex Neill, the managing director of Which? home products and services, commented.
“We believe that the government must tackle the issues that we have identified in our report head on to ensure that the rental market delivers for consumers.”
What does this mean for letting agents?
Not much in the short-term, as the government is unlikely to make sweeping reforms to the deposit system for privately rented properties anytime soon. While the Which? research is undoubtedly a cause for concern, it’s important to remember that it is only one piece of research and may not be indicative of the sector as a whole.
That said, there are clearly issues at play when it comes to deposits, and clearer guidance on where deductions can be made and where they can’t would be welcomed by landlords and tenants alike. Also, the fact that some tenants are having to effectively cover two deposits at once is not ideal – and a faster process to return deposits, in full or with deductions, to tenants would also help to ease any financial burdens.
You should work closely with landlords and tenants at the end of a tenancy to ensure the check-out process is handled in an efficient, professional manner. If deductions need to be made, these need to be justified and explained to the tenant – who can then decide whether they want to appeal or not.
You could step in to mediate if a complaint is made, or the issue could be a passed to a deposit dispute service, of the like provided by the government’s three approved tenancy deposit protection schemes: the Deposit Protection Service, MyDeposits and the Tenancy Deposit Scheme. The dispute can be referred to these schemes and resolved by a professional, impartial adjudicator.
Remember, any deposit you or your landlords receive at the start of a tenancy must be placed in one of the above schemes within 30 days of it being received.
At the end of a tenancy, your landlord clients must return a tenant’s deposit within 10 days of agreement being reached on how much will be repaid. Carrying out a thorough inventory at check-in and check-out can help to avoid the prospect of disputes over cleanliness or damage to a property.
Moving forward, the government’s planned changes to the rental sector through the Tenant Fees Bill – which will see the banning of letting agent fees charged to tenants – will also see security deposits capped at a maximum of six weeks rent.
While wholescale reform or alternatives to the current deposit system may not be on the cards, there are steps and measures that can be taken to speed up the process of returning deposits to tenants and only making deductions when they are warranted. Fostering trust between landlords, tenants and your agency may also help to limit the chances of disputes occurring.
At Rentshield Direct we offer a range of services, ensuring there is a strong link between agents, tenants and landlords. We offer tailored tenant referencing to ensure your landlords get the best tenants in place.