Government Deposit Schemes Paper debates deposits
In the midst of the Tenants Fees Bill that is due for Third Reading on Wednesday, the Government have published a deposit schemes paper that indicates the main problems with the existing system involve non-compliance and lack of enforcement of tenancy deposit schemes and unaffordable deposits.
Amendment 28 of the scheme looked for Government to review tenancy deposit schemes. In particular, the view that procedures following a breakdown in alternative dispute resolution (ADR) often meant the claimant being forced to use the Courts to either retain or claim a deposit.
The main problem with using a small claims Court centre around the inability to claim legal fees if you are successful which could negate or override the money recovered in the process.
Lord Beecham, Shadow Spokesperson for Communities and Local Government, said: “Very often, one reads that allegations are made that the tenant has damaged the property and so forth. Given that usually not large sums are at stake, it seems to be the case that some tenants give up the ghost rather than pursue the matter.
“There is a scheme for dispute resolution, which is operated by the relevant agency without charge. However, it is not binding on both parties to accept the scheme’s involvement, so if a landlord, or it could arguably be a tenant, is at the wrong end of a claim, the other party would have to seek redress through the courts.
“We have already had a reference to the small claims limit this afternoon, and it is probable that most deposits would be within the range of up to £5,000. No legal aid is available and no costs are recoverable on a successful claim. This is going to make it less likely than ever that tenants will exercise their right to recover a deposit which is being wrongfully withheld.”
In response, Baroness Williams, stated: “From the overall feedback received, we are satisfied that the alternative dispute resolution system generally works well. Of the 11.5 million deposits which have been protected since the launch of the scheme, less than 2% have gone to adjudication. On average, following adjudication, 27% are awarded to tenants, 17% to landlords or agents, and just over half are split between the two sides.”
However, when generation rent remains dependent on their deposit to secure another rental property, delays in the system or a refusal to return money could be costly in both financial terms and emotionally.
It was this financial and emotional stress felt by tenants that encouraged a fresh look into rental deposits and the limit a landlord could charge. Through the Tenancy Draft Fees Bill, the Government upheld the decision to cap deposits at six weeks rent.
Sarah Jones, Labour MP, claimed that the six-week cap should be reduced to three weeks as the current system makes the affordability of renting a home extremely difficult due to the expectation of paying the accumulative costs of one month’s rent, six-week deposit and letting agent fees.
The Government claim: “Using data from deposit protection schemes, we estimate that about 93% of deposits are for greater than three weeks’ rent, and as we have heard, most landlords require a deposit of about one month or five weeks’ rent. The deposit serves an important function as a deterrent. It gives tenants an added incentive to comply with the terms of their tenancy agreement. Further, if we lower the cap on deposits to three weeks’ rent, there is a higher risk that a deposit will no longer fully cover the damages to a landlord’s property or any unpaid rent. Landlords would be likely to seek to offset that risk by asking for more rent up front, or they may be deterred from investing in the sector entirely. Neither of those outcomes would help tenants.
“We have listened to concerns that a cap at four weeks’ rent or less may encourage tenants to forgo their final month’s rent. The Housing, Communities and Local Government Committee also recognised that particular risk, acknowledging that this was an area where it is difficult to achieve balance, and interestingly suggested a cap of five weeks, which is considerably more than the three weeks that we are discussing. Furthermore, nine out of 10 respondents to our consultation on banning letting fees agreed that deposits should be capped at at least four weeks’ rent.
“As the landlord or agent representatives we heard on Tuesday pointed out, a cap of six weeks provides the flexibility that landlords need to rent to higher-risk tenants. For example, lowering the deposit cap to three weeks’ rent might hurt pet owners or those who live abroad.”
Whilst the balance between tenant affordability and landlord protections continue to be debated, the eventual passing of the Tenants Fees Bill looks likely to come into law by Spring 2019. The Bill returns to Parliament tomorrow as it moves from the Report to Third Reading stages.
Are there enough protections for tenants in the new system? Will the expected changes continue to deter people from purchasing rental property? Will this debate impact conveyancers?