The loophole that puts tenants' deposits at risk

Apr 17, 2014 8:33 PM

Since 2007, tenants are supposed to have had peace of mind when handing over the best part of a month's wages at the start of a tenancy, with a government-backed deposit protection scheme. But Channel 4 News reported tonight that it's possible for a landlord to hold on to the money, then get barred from the scheme and make off with their tenants' money.

The scheme's chief exec and the chair of the National Landlords Association say the scheme works for landlords, but it quite clearly didn't work for the 160 tenants who saw their money disappear. The deposit protection scheme simply won't protect deposits until this loophole is closed. We're calling on the government to review the scheme, and for the NLA to pay back the money that isn't protected.

Channel 4's subject, Daniel Burton, rented flats from the owners only to sublet rooms to tenants, and is now running letting agents. His case serves as a reminder of the need for a register of landlords - and mandatory licensing of letting agents.

Burton registered his tenants' money through MyDeposits, a scheme in which the National Landlords Association is a shareholder. The scheme allowed him to keep the tenants’ deposits himself, which meant that they were not protected when he was later expelled from the scheme and subsequently left the business, owing 160 tenants around £140,000. Burton promised to pay the money back in November, but some tenants are still waiting to be reimbursed.

This case raises serious doubts about the effectiveness of government-backed tenancy deposit schemes. While one of the three different schemes provides the option to hold the tenant’s money in a neutral account, the two other schemes, including MyDeposits, allows landlords to keep the money, in return for insurance payments. 

Generation Rent are calling on the government to review the deposit protection system to ensure that tenants’ money is not put at risk should their landlord fail to comply with scheme rules. The NLA should pay back any money that has not been adequately protected. 

Burton also opened a letting agents in Scunthorpe and Cleethorpes after passing the parent company’s vetting process. We are calling for the government to introduce compulsory licensing for letting agents, with a fit and proper person test, and a national register of landlords to ensure that all tenants can check if their landlord is bona fide and legitimately letting the property.