Costs to Rise for Mandatory Tenancy Deposit Cover

2008-09, the second year of operation since mandatory deposit protection was introduced into the private rented sector, was successful for the Tenancy Deposit Scheme (TDS). The number of tenancies registered nearly doubled, rising from 470,323 to 786,405. This covered 1.2 million tenants and protected nearly £700 million in deposits. In the current year, the value of deposits protected has grown and is now close to £1 billion.

However, the number of deposit disputes is also rising steeply, leading inescapably to increased costs to TDS and therefore to its members.

This warning is contained in the second Annual Report of The Dispute Service Ltd, published today, Tuesday September 15. The Dispute Service Ltd, which is a not-for-profit organisation, runs The Tenancy Deposit Scheme. Within its core membership, the Scheme currently has 2,800 regulated lettings agents operating some 5,000 offices between them, and corporate landlords.

The number of tenancies registered with the scheme and ending in a deposit dispute rose dramatically from 1,901 in 2007-08, the first year of mandatory operation, to 6,491 in the year to March 09. The Annual Report warns that the number of these disputes is expected to continue to rise dramatically to not less than 10,000 disputes in the current year.

Since the report was written, this estimate for the number of disputes during the current year has risen to 12,000.

The Chairman of the Board of The Dispute Service Ltd, John Hornsey, warns that the rapidity of this rise has forced costs up by 42%. Expenditure for the current year will be met from reserves. However, Mr Hornsey also warned that if the volume of disputes is sustained, let alone if it continues to rise at the current rate, increases in subscriptions will be unavoidable.

Chief Executive Lawrence Greenberg added, "Clearly, the more tenancies we are covering, the more disputes we are going to get. I hope our members understand that as disputes account for the bulk of our costs, the fewer disputes they are unable to resolve themselves, the more we will have to charge them."

In 2008-09, a dozen letting agents who were Scheme members were unable to stay in business. Those that were regulated agents had mostly complied with the Scheme's requirements for deposits to be kept in ring-fenced client accounts. This was not always true of unregulated agents. As a result, the Scheme's insurers decided they could no longer carry the risks posed by the unregulated agency sector and withdrew cover.

Reaction to this was not critical as most took the view that the overall effect was to encourage letting agents to join regulatory bodies to the benefit of the consumer and the lettings industry. In fact, more than half of those agencies affected were able to fulfil the criteria of at least one of the regulatory bodies and were allowed to rejoin the Scheme.

Chairman of the new Council of The Dispute Service, Professor Martin Partington CBE QC, said that the Scheme aims to resolve disputes in a proportionate and frequently pioneering way and that "The Council is considering how potential disputes can be 'nipped in the bud' as well as examining ways in which they can be resolved more quickly and at lower cost."

14th September 2009

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