Quote Ref: WS1

Failure Of Insurance-Backed Deposit Schemes

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In the firing line recently have been the “Insured” deposit protection schemes for tenants which have found themselves dragged into a story about an unscrupulous letting agent.

Channel Four news recently ran a story about how rent-to-rent agent Daniel Burton who owned an agency called Unida Place and who last summer shut up shop not only closing the business, but owing hundreds of tenants their deposit money.

From the outset Burton had complied with the law which required him to register all deposits with one of the approved deposit protection schemes.

The deposit scheme he chose was, MyDeposits, however it has since transpired that he was subsequently expelled by MyDeposits as he had failed to comply with their procedures.

This meant that on his expulsion, the deposits were no longer protected.

The Channel 4 report stated that following Burton’s expulsion, MyDeposits wrote to his tenants letting them know they only had three months before their deposits became “unprotected”.

This meant that Mr. Burton had over a £145,000 of deposits sitting in his business bank account which were unprotected.

These deposits were never repaid to many renters when they left their accommodation.

During the TV programme the CEO of MyDeposits, Eddie Hooker,  stated that the scheme was simply following the rules as they were laid out in the relevant legislation.

These rules state that Under the Housing Act 2004 all of the insurance-backed schemes (The Tenancy Deposit Scheme, MyDeposits, and a third the Deposit Protection Service) must terminate that person’s membership if a breach of the rules occurs. There is also another scheme which is run by the Deposit Protection Service and this is a custodial scheme – which doesn’t expel members.

Another comment during the programme was from Alex Hilton, of Generation Rent, who stated “It’s a deposit protection scheme for tenants – they have told tenants that their deposits are protected: Therefore they  should protect the deposit, if not then the system is failing ”.

Currently if a tenant’s deposit has not been properly protected irrespective of any member’s expulsion from a scheme, then the tenant is at liberty to take the landlord to court. If successful in their claim then they could be awarded up to three times the amount of the deposit as compensation.

It remains to be seen if the Government has any plans to close this significant loophole in the legislation regarding Insurance-Backed Deposit Schemes in particular regarding members who are expelled.

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