Crackdown on 'rogue' landlords

Deposits disputes can "poison" landlord-tenant relations

By Sarah Toyne BBC News Online personal finance reporter

Landlords could be banned from holding tenants' deposits, under new proposals aimed at cleaning-up the private rental market.

We would like to see legislation that creates a deposit bond system

Shelter

The proposals unveiled by the government are also aimed tackling the abuse of properties by tenants, in disputes which can "poison landlord-tenant relations".

Under one idea, deposits would be held by a central collective "fund", possibly run by a bank, rather than by a landlord or letting agent.

This would mean there would be less room for landlords to run off with money or refuse to pay out, and any disagreement over the deposit could be agreed by an independent adjudicator.

The government said it was unlikely that the scheme would be self-regulating, because there had been such poor take-up of its voluntary pilot by landlords and letting agents.

But any plans to make it legally-binding would depend on a careful analysis of the costs and benefits of such a scheme.

Foreign influence

According to government research for England, about one in five tenants believe they have lost out because their deposit was unreasonably withheld by a landlord or agent.

At the same time, many landlords have problems with tenants who refuse to pay their last rent instalments because they fear they will not receive their deposit back.

Legally-binding schemes, which safeguard tenants' deposits and landlords' property are run in other countries, including parts of Europe, Australia, New Zealand and Canada.

Return of deposits*

Returned in full: 609,000 71%

Withheld in part 137,000 16%

Deposit withheld in full 112,000 13%

*in last three years (2001-2002). All cases where a deposit was paid

"But in the UK, many landlords and letting agents regard tenants deposits as part of their working capital," the government said.

"Anecdotal evidence suggests that the majority of individual landlords do not hold deposits in ring-fenced accounts, and do not return any accrued interest to the tenant at the end of the tenancy."

Housing charity Shelter told BBC News Online that it strongly welcomed the consultation.

"We would like to see legislation that creates a deposit bond system.

"Coupled with a free adjudication service, this could establish a much more equitable system for both landlords and tenants to recover money owed to them at the end of the tenancy without having to resort to court action."

Favoured approach

The government has set out a range of options for reform in its, but has suggested in its consultation that it favours a "custodial" approach.

Common grievances

Landlord/agent "disappears" or is incommunicado

Tenant gives up getting deposit back

Landlords and agents refuse to return the deposit without giving any reason

Tenant withholds final month's rent

Dispute over whether deductions are reasonable

This means it would be illegal for a landlord to hold a deposit for a tenancy - and it would be a legal requirement for landlords and agents to demonstrate membership of an approved custodial scheme prior to taking the deposit.

Bank interest earned on the "pot" of money could effectively pay for the administration of the scheme, the government said.

"This is arguably the simplest way of ensuring that tenants who honour the terms of their tenancies get their deposits back, and is in economic terms far more certain...of becoming self-financing."

But the plans are likely to meet "considerable hostility from landlords", who feel it would be too bureaucratic and interfere too much in the way they run their businesses.

Other measures

Deposit protection is one of a range of reforms to the tenancies, which are currently under discussion.

The Law Commission recently announced proposals for prescribed tenancy agreements be adopted, with both deposit protection and return be included in core terms.

Deposit facts

70 per cent of 2.21 million private rented sector tenants had paid a deposit

The average deposit was around £510

Deposits worth £790m are held

Source: Survey of English Housing

And, last year, the Office of Fair Trading announced a clampdown on unfair contract terms in tenancy agreements to make it "clearer and fairer for tenants".

Housing Minister, Jeff Rooker, said: "The avoidance of disputes hinges upon a clear understanding of the rights and obligations of landlords and tenants - particularly with regard to inventories and standards of cleaning.

"But the safeguarding of deposits and the settlement of disputes may well require statutory regulation."