This Private Letting Sector update focuses on Tenancy Deposit Schemes (TDS) and covers:
The Tenancy Deposit Schemes (Scotland) Regulations 2011 have had legal effect since 7th March 2011. The Regulations apply to landlords who (a) let private accommodation and are required to register with their local authority as a landlord and (b) receive/have received a deposit as security against a tenant’s failure to meet their obligations under the terms of a lease or occupancy arrangement.
Under the Regulations landlords must lodge these deposits in a Tenancy Deposit Scheme.
Tenancy Deposit Schemes
TDS are independent third party schemes, approved by the Scottish Government, which receive, hold and protect a tenant’s deposit during the term of the tenancy.
The aims of TDS are to:
- prevent deposits being unfairly withheld at the end of the lease;
- speed up the process of deposits being refunded where there is no dispute between the parties and;
- in instances where the amount of the deposit to be returned is in dispute, to provide access to a free dispute resolution service to help resolve the dispute - without either party having to resort to court action.
What does this mean for Landlords?
The Regulations oblige landlords to timeously:
- pay the deposit to the scheme administrator of an approved TDS and;
- provide the tenant with specified information regarding the deposit scheme.
There is no cost to the landlord to register with one of the TDS.
Tenancy Deposit Schemes went “live” on 2nd July 2012
TDS went live on 2nd July 2012 and from that date the compliance clock started ticking. Landlords must lodge deposits in one of the three TDS approved by the Scottish Government, or, face the consequences of breach!
Timescales for Compliance
The Scottish Government have published dates for compliance as follows:
Approved TDS schemes
The three approved schemes in Scotland are:
When is a Landlord in breach of the Regulations?
A landlord may be considered in breach of the Regulations if he has failed to do any one of the following:
- submit a deposit to a custodial scheme within the timescales specified above;
- provide the tenant with prescribed information within the timescales specified above or;
- ensure that the deposit is safeguarded by a tenancy deposit scheme throughout the period of the tenancy
What are the consequences of breach?
If a tenant takes a landlord to court for breach of the Regulations and the Court holds the landlord to be in breach then, in addition, to being compelled to rectify the breach the landlord may, at the Court’s discretion, be fined up to three times the relevant deposit! The landlord must then account to the tenant in that sum.
Although late deposits will be received by TDS, the message is clear – act within the timescales to avoid unnecessary penalties.
Paying out Deposits
Assuming that the landlord has complied with his obligation to lodge a deposit with an approved TDS, the time will inevitably come - at the expiry of the tenancy - for the deposit to be refunded.
After the conclusion of the tenancy the landlord or tenant can write to the scheme detailing what they consider should be released to each party. This will then be sent by the scheme to the other party. If parties agree then the funds will be issued in accordance with that agreement.
If parties are unable to agree, the dispute may be determined by recourse to the Alternative Dispute Resolution (“ADR”) procedure provided for in the selected TDS. In the event of any dispute, landlords are obliged to use the ADR procedure, however tenants are not obliged to and can raise court proceedings if they so wish.
Disputed Deposit - ADR
If ADR is invoked then the TDS will issue a form to the landlord which must be completed and returned to the TDS. The TDS will review the landlord’s evidence and then send a similar form to the tenant to complete. On receipt of both forms an Adjudicator will make a decision on the amount of the deposit to be refunded and if neither party objects then the deposit will be released within 5 working days.
Review of ADR
If either party is unhappy with the decision reached by the Adjudicator then they may request that the evidence is reviewed by another Adjudicator, but only on the grounds that either the Adjudicator has erred in fact or in law. The second Adjudicator’s decision is final.
Please note: There are timescales which must be adhered to for either invoking or requesting a review of the ADR process, which are detailed in the Regulations and the scheme’s own rules.
Joint Tenancy and Lead Tenant Issues
Care must also be taken by the landlord in relation to paying out the deposit. Although the Regulations themselves are silent on the matter, TDS may require, in the case of joint tenancies (where there is more than one tenant), that a Lead Tenant is nominated to deal with issues pertaining to deposits.
The Lead Tenant should be authorised by the other tenants to deal with any issues arising regarding the deposit, however the three TDS schemes have varying terms and conditions in this regard. One of the schemes requires the landlord to confirm that the other tenants have approved the person specified as Lead Tenant to deal with the deposit on behalf of all the tenants. The landlord must also confirm that he will indemnify this scheme in respect of any claims against it by any of the joint tenants.
This is clearly an area of concern and one which should be considered by the landlord before opting for a TDS. In order for the landlord to avoid a claim against him, (for example where the Lead Tenant receives the refunded deposit and then disappears into the sunset without first accounting to the other tenants), he must ensure that he has the authority of all the tenants to deal with the deposits in this manner.
For extra protection, it is best to incorporate the tenants’ consent to refunding deposits in this manner into the lease agreement itself.
Lessons for Landlords
Clearly the Regulations have far reaching implications for the landlord. It is the landlord who in the first instance will be held responsible for any breach of the Regulations - not his agent. Landlords should therefore ensure that they, or their agents, comply with the obligations regarding timescales for lodging deposits and providing relevant information to the tenant and also that future lease agreements contain the correct deposit provisions now that the TDS are live.
Actions for Agents
If you are an agent acting on behalf of a landlord then you must be certain that you, if within your remit, keep the landlord covered in respect of his obligations under the Regulations. If not within your remit we would recommend that you remind the landlord of this and advise him of the steps he should be taking. Ultimately, a landlord’s remedy, if he is found to be in breach of the Regulations, may be against his agent – most likely on the grounds of breach of contract.
Agents should consider refining their terms of business to specify exactly what services they will execute on behalf of the landlord in respect of the Regulations, what costs (if any) there will be and who will be responsible for those costs.
Agents and landlords should also review and update internal procedures to ensure that they will have sufficient and persuasive evidence available (and on file) so that it may be relied upon should a dispute regarding a deposit be referred to ADR.
This could include:
- preparing more detailed inventories reflecting the state of the premises at the commencement of the lease and supplementing this with a photographic inventory and;
- carrying out more frequent inspections of the premises and updating inventories throughout the duration of the lease
Leases should also be revised in order to provide authority for the landlord, or his agent, to avail themselves of these rights.
Additional Costs to Agents
Agents may find that the TDS enhances their administrative and manual burden to such an extent that their current charges and fees will need to be increased to take account of this. For that reason alone it may be necessary for agents to have new terms of business and rates drawn up or existing terms revised.
In light of TDS landlords and agents should have leases and agency agreements reviewed to ensure:
- obligations under TDS, or ancillary obligations resulting from TDS, are captured and catered for;
- that any agreements identify who is responsible for discharging those obligations;
- additional costs which are likely to be incurred are identified and;
- liability for costs is clearly attributed to one party or the other
If you are a landlord or agent and would like some advice on your obligations, or to discuss a review of a lease or terms of business, please feel free to contact us. If you are not already a member, please join the Scottish Private Letting Forum on LinkedIn where we we post regularly about these and other issues.
This newsletter has been issued by Lindsays on the basis of publicly available information, internally developed data and other sources. Whilst all reasonable care has been taken to ensure the facts stated and the opinions given are correct, Lindsays does not accept any responsibility for its content and advise that specific advice should be sought regarding the topics covered.
© Lindsays 2013