A group of angry landlords who had been clients of a letting agent which had used an insured tenancy deposit scheme and who are said to have lost over £60,000 between them, backed a Freedom of Information request.
The request – a generic one about agents without Client Money Protection insurance who use deposit schemes – was put to the Department of Communities and Local Government by industry consultant Laurence Dillamore.
It queries the use of insured schemes when the agent goes off with the cash and has no CMP insurance. Under the 2004 Housing Act, landlords are ultimately responsible for deposit funds, even if they use an agent, and so have to reimburse tenants whose deposits have vanished.
Dillamore’s request noted that, of the four tenancy deposit protection schemes currently licensed by DCLG, there are two, Mydeposits and Capita, which provide a facility for ‘unregulated’ letting agents – ie, agents who are not members of a body such as ARLA, RICS or NALS and thus have no CMP – to hold deposits in their own bank accounts.
Dillamore asked CLG to confirm how many complaints it had received from landlords since 2007, “specifically those who claimed that they had been misled into believing that they were afforded protection” after insuring the deposit should their letting agent abscond with funds.
Dillamore also noted his view that unregulated agents, who do not have CMP in place, should be compelled to use the ‘custodial’ tenancy deposit scheme – ie, bank the actual money, rather than hang on to it and insure it.
The landlords who annotated the Freedom of Information request unleashed their anger against the deposit scheme Mydeposits.
They had been clients of an agent named in the public thread as Barringtons in Chalfont St Peter, Buckinghamshire. There is no suggestion that the firm misappropriated any money, and the firm is not referred to in the Freedom of Information request. The firm converted to become a Winkworth franchise.
One angry landlord noted that “Mydeposits has left me robbed of over £2,000 – an absolute shambolic mess”. Another said he had lost over £4,000 of deposit money, and another that he had lost over £3,500.
Another said the scheme was useless, and that he was at a loss as to what Mydeposits had been doing to protect the money.
Yet another asked why the Government “allowed a flawed scheme” and urged: “Investigate these schemes – licensed robbery”. One landlord said the Mydeposits scheme was “hopelessly flawed”, offering landlords no protection at all.
CLG replied to Dillamore’s request, saying there had been seven complaints from landlords to the department, all complaining they had been misled into believing they were protected under an insured tenancy deposit protection scheme against the possibility of an agent running off with tenants’ deposits.
The CLG letter, signed by a Paul Martin, said that it was the landlord’s responsibility to be “properly informed” of the risks involved in using letting agents without CMP insurance.
Further correspondence between Dillamore and Martin has revealed that all seven complaints were against Mydeposits, and all had experienced letting agents going bust.
Asked by Dillamore if the schemes should not display ‘health warnings’ to “ensure that landlords are fully aware” that insurance schemes “do not provide any protection to the landlord whatsoever”, Martin replied that ministers want to provide choice for consumers.
The Mydeposits scheme, which was launched by the National Landlords Association, was sent the entire thread and invited to comment.
Eddie Hooker, CEO of mydeposits, said: “We understand that it can be a very stressful and costly situation for landlords who have experienced their letting agent default.
“Tenancy Deposit Protection (TDP) is a consumer protection initiative that was introduced to protect the tenant’s deposit money throughout the tenancy. Under the Housing Act 2004 the landlord is deemed ultimately responsible for ensuring they are fully informed about their rights and responsibilities under TDP law.
“In order to further safeguard landlords, my|deposits write to every landlord client of our agent members and we issue guidance which explains the risks of enlisting the services of an agent:
www.mydeposits.co.uk/landlords/resources-and-guides/using-an-agent
“The guidance sets out the landlord’s obligations and responsibilities and contains specific information and advice as to how they can protect themselves against the risk of fraudulent, insolvent or defaulting agents.”
Winkworth said: “Barrington Property Services, which was a member of a tenancy deposit scheme, converted to an independently owned and operated Winkworth franchise in January 2012.
“The franchise was terminated in the autumn 2012 and we were made aware that the business was to be acquired by Blacktree Properties Ltd. We therefore ensured that all clients were written to by Barringtons and Blacktree informing clients of the changes.
“In regards to the link to the enquiries being made by Mr Laurence Dillamore to the DCLG we do not feel that we can comment on issues concerning the criteria of tenancy deposit schemes.
“Other matters raised are clearly part of ongoing Government policy and the tightening of regulation to cover letting and property management agents which naturally we support in principle.”
https://www.whatdotheyknow.com/request/complaints_from_landlords_re_ins
Comments
Steve,
In which case use the DPS (Insured) scheme where the deposit is protected for the duration of the tenancy.
Why not have a single premium payable per deposit registered which will protect them for life. Then it is done, is it not???
At the moment I pay the TDS extra each year for each deposit that continues to be protected.
@ II
You may be right, though not as far as I am aware.
However.............
So the $64M dollar question is this:-
If an agent simply disappears, doesn't go into liquidation themselves or declare bankruptcy but just absconds with the money or otherwise acts fraudulently, is that liquidation?
And how many Landlords in any loss situation where their rent has disappeared are likely to agree to the tenant having the deposit? Apart from anything else if they have not been paid their rent, and the tenant cannot prove that they have paid it TO THE LANDLORD then presumably the clauses in a well drafted agreement would come into play and the landlord could claim against the deposit for unpaid rent?
Not quite so clear cut perhaps?
Apart from anything else do you see TDS insurers happily paying out £3/4M on the other recent case?
The key to remember is that the tenants deposit is protected - in fairness, it is called a Tenants Deposit Scheme.
Any claim a landlord may legitimately have upon it in the event that the deposit is missing is not necessariy covered.
I know many landlords who are shocked by this and I think that clarity is needed so that agents who use an insurance backed scheme have approrpiate cover for all eventualities - I agree, a health warning would be a good place to start - consumer awareness is key.
It is truly astounding that it has taken this long for people to realise that the deposit schemes only protect tenants. If an agent pinches your cash, and your tenant owes you money for rent, damages etc which you would normally recover from the deposit - a landlord is NOT covered. ARLA kept this VERY quiet from the outset. It's a scandal as nowhere is a Landlord told that a claim for moeny owed to them isn't protected - only the tenants claim.
It seems strange in world of 'full disclosure' that a landlord is lulled into a false sense of security by schemes designed to protect people.
Simply, there should be a 'Health Warning;' on depost backed schemes
II
Not quite correct if the TDP provider, having got wind of the potential problem, invokes the 90 day clause and unprotects the deposit. In which case, as happened in the Barringtons case, unless the tenancy concludes within the 90 day period the landlord will be left to deal with the tenant themselves. Quite outrageous when you think about it.
I am afraid you are wrong "Industry Observer", if an agent were to go into liquidation and the landlord was happy for the deposit to be returned to the tenant/s then an insured scheme would ensure the deposit was returned. However if the scheme were asked to adjudicate (as the landlord did not consent to the tenant having the deposit returned to them) and the scheme awarded the money to the landlord during the adjudication they would not pay out this money (to the landlord) as only the tenants interest is protected, that is the nature of the legislation.
IO & Ray,
I agree with all that, the whole concept is riddled with anomalies. DCLG using the words 'consumer choice' when it is the agent, not the tenant (or landlord), that determines which TDP provider is used in most cases, doesn't help the problem either.
If they simply prevented my|deposits and Capita from allowing unaccredited agents without CMP to use their facilities, it would solve much of the confusion.
I agree with you IO but in my mind the main problem here is caused by the use of the word 'insured' by both CLG and the insured scheme providers.
We've had many landlords that have raised the question about the 'insurance policy' that protects their deposit, we are with TDS, and we are always met with a look of disbelief when we explain that in fact there is no actual insurance policy set out at any stage by any of the insured schemes. Most new landlords I speak to understood the scheme protects their deposit full stop; it often comes as a shock when they find out it doesn't.
Given the mess over the Superstrike case its clear the scheme providers are only guessing about how the legislation needs to be interpreted at times, so I believe CLG need to make it a lot clearer to the man on the street EXACTLY how the schemes work. They won't of course, but that's what they should do.
Absolutely everyone, Landlords and Tenants and agents themselves, need to be 100% clear on one key factor - the insured schemes DO NOT protect the deposit in terms of it it goes 'missing'.
What is insured, and under the regulations that control Schemes and dictate the rules they must follow, is any money which is the subject of a dispute but which the agent or Landlord then fails to pay into the Scheme for adjudication purposes.
All that the Schemes are insuring is money they should be holding when a dispute is lodged NOT THE ENTIRE DEPOSIT which can then be paid out - it cannot.
TDP Schemes do not act as a protector of last resort in cases where deposits go missing - never have done.