Tenancy deposit schemes show sharp contrasts
December 2009
Major differences have emerged in how the three tenancy deposit schemes are working.
According to Mydeposits, the scheme launched by the National Landlords Association, just 0.61% of cases end in dispute.
Yet figures from the Tenancy Deposit Scheme (TDS) - which is thought to have around 50% market share - suggest it is working to the assumption that 2% of cases this year will end in dispute.
But of most interest are the massive differences in the outcomes of disputes, all of which legally have to be resolved by the independent process of ADR (Alternative Dispute Resolution).
The TDS - an ARLA initiative - says that the results break down 50:50 in favour of both tenants and landlords/agents, both where disputes are found wholly in favour of one or the other, and where amounts within the deposits are split between landlord and tenant.
However, this is in marked contrast to Mydeposits, which is the other insurance-backed tenancy deposit scheme and was launched by the National Landlords Association.
Mydeposits says that 92% of all disputes end either in favour of the tenant or are split decisions.
Breaking down the figures further, 55% of disputes are found wholly in favour of the tenant with only 8% found wholly in favour of the landlord or agent. The remaining 31% of disputes are split, but Mydeposits has not said how.
The fact that the ADR process finds so overwhelmingly in favour of tenants must be a source of angst to the National Landlords Association and its members. But a spokesman pointed out last week: "Landlords might not like it, but at least they cannot complain that the process is not fair."
The only tenancy deposit scheme which physically accepts deposit money and guards it in bank accounts, the Deposit Protection Service (DPS), is closer to Mydeposits than to the TDS, but still paints a different picture.
It says that only 18% of adjudications have been fully awarded to the landlord or letting agent, whereas 38% have been awarded in full to the tenant. The remaining 44% have been split, although the DPS has not said how.
It is known that the Government department responsible for overseeing tenancy deposit protection, CLG, is looking closely at several issues.
One problem has been highlighted by the Martin & Co cases, showing that where a letting agent who has used one of the insurance-backed schemes goes out of business, there is no protection for the landlord.
Mydeposits has made no secret of the fact that its hands are tied by the legislation, which it says is there to protect tenants but not landlords.
A spokesman for the scheme emphasised that Mydeposits uses independent external examiners.
The TDS has also been caught out by an escalation in the number of disputes, which it had not budgeted for. It is changing its charging model and will be announcing its new prices in the New Year. It has already warned these are likely to be 'severe'. In a cost-cutting exercise, it has chopped all 70 of its external case examiners, and the growing number of disputes will now be handled by a team of 12 in-house.
A spokesman for the DPS told Estate Agent Today: "Regarding the adjudication service, the DPS is not changing the way it runs the service. We have used both internal and external adjudicators to ensure that landlords and tenants get the best possible service. All the adjudicators we employ are qualified in law and experienced in housing law and all are members of the Chartered Institute of Arbitrators.
"We are independent in the sense that we have no links to industry in terms of landlords, letting agents or tenants and we only care about making consistent judgments with a high level of quality at all times, whether with our internal or external adjudicators. There is no reason for us to compromise our impartiality when making adjudications.
"There are good reasons to use internal adjudicators: for example, it ensures that decisions are consistent in approach and the speed of the response meets our obligations.
"We are also the only scheme that protects deposits in the event of a landlord or letting agent going bust which we think makes our scheme the most secure."
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