The November deadline for the new legislation requiring Scottish letting agents to place all tenants’ money (both new and ongoing) into a custodial scheme is fast approaching and many agents are trying to sell up to avoid the situation. Fears are growing that some may deliberately go out of business, taking large sums of deposit money with them into bankruptcy, placing a huge burden on landlords, whose responsibility these monies will become.
Landlords are justified in being worried. Already some letting agents have quite literally run from the situation and forecasts suggest that in a year from now half of all Scottish letting agents in business today will no longer be trading. It is essential that any private landlord with a property in Scotland find out where the deposit is and make sure that it is properly protected. Many agents had used the tenancy deposits as working capital, safe in the knowledge that new deposits are coming in all the time. Now that new deposits must be placed in a custodial scheme and past deposits also must be so placed has made an impossible situation for many who simply no longer have the money.
A recent debate on the issue was attended by many representatives from the lettings sector, including Ian Potter, managing director of ARLA, representatives from the Scottish Federation of Housing Associations (SFHA), Shelter Scotland, along with Elaine Murray, Scotland’s shadow housing minister. It was obvious the tenor of the meeting that the protection of tenancy deposits is a good move, but even so the possible collapse of the Scottish letting agent market was considered to be a serious cause for concern.
Peter Grant, managing director of VTUK, said: “Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements…. The clock is now ticking and agents have until November 2 to find the finance required in order to place deposits into one of the three approved schemes. Given current economic conditions and the restrictions banks are placing on lending, there is a real danger that many agents simply won’t find the money and will go out of business, leaving landlords and tenants significantly out of pocket.”
Some estimates put the amount of ‘missing’ money as high as £50 million, a huge sum far in excess of what was forecast. The issue is made more complex by the fact that in Scotland, the sums have to be physically transferred into one of the schemes. In England and Wales the problem was managed when the custodial system came into effect but enabling agents to pay a fee to insure the deposit, meaning that the actual funds did not need transferring immediately. This meant that agents could continue to ‘roll over’ deposits as before.
Peter Grant added the following warning – “I am genuinely concerned that the tenancy deposit legislation introduced in Scotland could result in a swathe of administrations, particularly amongst the smaller, independent agents, that would be damaging for the industry and consumers alike.”
As an additional problem – as if the Scottish letting agency sector needs another – the scheme offers no protection for money outside of the deposit, such as the rent. It is a shame that the introduction of a system designed to protect everyone from loss will possibly cause such a major upheaval in an entire business area. The shockwaves will take a good many years to die down and in the meantime the private lettings area, landlords and tenants – both current and future – are in for a very difficult time.