It’s been over 12 months since Tenancy Deposit Scheme regulations in Scotland were introduced and even less time since deadlines passed for deposits being lodged with one of three approved scheme providers. The theory behind the scheme is clear and is easiest explained by looking at how deposits were dealt with before compared with after the introduction of Tenancy Deposit Scheme.

Before the Tenancy Deposit Scheme

Prior to the Tenancy Deposit Scheme being introduced, the landlord held the tenant’s deposit in the landlord’s own bank account and come the end of the tenancy the landlord would use the deposit money as the landlord saw fit to repair any dilapidations caused by the tenant. This was usually done at the landlord’s discretion covering whatever the landlord felt was justified. This imbalance of power between the landlord and the tenant was the heart of the problem and the most practical reason for introducing the scheme. That’s not to say tenants were powerless and landlords could do as they liked. In cases where the landlord was unjustly using the tenants deposit the tenant could take the landlord to the small claims court to recover the disputed amount. A tenant could raise a small claim against a landlord for the up front court fee of £65. Neither party would need legal representation (they could represent themselves) and the onus would be on the landlord to provide evidence to the small claims court for the deductions made from the deposit along with invoices/receipts to cover their expenses. Should the tenant be successful in their claim then they could also recover the £65 court fee from the landlord too. It sounds simple enough, however the reality was that the vast majority of disgruntled tenants did not know their rights or where to start with the legal process of making a claim. Hence the introduction of the Tenancy Deposit Scheme which basically brings the legal process right to the tenant instead of leaving the onus on the tenant to seek it out.

After the Tenancy Deposit Scheme

Since the Tenancy Deposit Scheme has been introduced landlords have 30 working days from the start of a tenancy to lodge the tenant’s deposit in one of three government approved tenancy deposit schemes. Once a deposit has been lodged, the landlord has no access to the funds as they sit in the bank account of the scheme provider. Instead, at the end of a tenancy the landlord must make their case to the tenant for the deductions (by supplying reasons, evidence and invoices/receipts) and the tenant can either accept the deductions or contest them. This is dealt with by the scheme providers using release codes. When a deposit is lodged, the scheme provider provides the landlord and tenant with a separate unique release code. At the end of the tenancy, either the landlord or tenant can initiate the release of a deposit using their unique code. If the landlord is proposing deductions from the deposit then the tenant can notify the scheme provider that they either accept or reject these deductions. In the case where the tenant is aware from previous dialogue with the landlord and accepts the deductions (or if there are no deductions) then the scheme provider will refund the deposit straight away. If the tenant contests proposed deductions from the landlord then the dispute process is launched with the scheme administrator and they serve as legal adjudicators and decide how the costs should be split. None of this comes with any additional legal costs for either party. Adjudicators will expect the landlord to have robust evidence to back up any claim for compensation from the tenants deposit and the strength of the landlord’s evidence will usually dictate how the claim is settled, although tenants also have the opportunity to submit their own evidence if they have any. Any amounts that are not disputed are released straight away to the tenant or landlord which is good since the adjudication process can take several weeks.

In summary, the introduction of the Tenancy Deposit Scheme is a very good thing and providing tenants understand their rights (and I expect tenants will learn quickly) then it should make a huge difference in reducing the number of tenants who lose their deposits unfairly at the end of tenancies. Landlords must learn quickly too and do their groundwork with lease preparation, inventories, proper check out reports with photographic evidence along with lodging their tenants deposits in a scheme and issuing the correct prescribed information. If they do not then even if a tenant should pay for dilapidations at the end of a tenancy, the landlord will most likely find themselves out of pocket on the wrong side of a Tenancy Deposit Scheme adjudication decision or even worse, facing a fine of up to three times the amount of the deposit with a CCJ against them for not complying properly with the legislation. Perhaps the pendulum has swung too far in the obligations it places on landlords but it could well be a price worth paying if it has the desired effect in cleaning up the private rental sector in Scotland.

If you have any questions or comments relating to this blog you can find me on twitter @UmegaNeil.