Rented sector reform: Housing (Scotland) Bill: business and regulatory impact assessment

Unclaimed tenancy deposits

Background, Objective and Rationale

Since 2012, where a private landlord asks a tenant to pay a tenancy deposit, the deposit must be lodged with one of three independent approved tenancy deposit schemes. When a tenancy ends, a landlord or letting agent is required to arrange the return of the deposit minus any reasonable deductions. The landlord or letting agent should do this as soon as they can after the tenancy ends. Unclaimed tenancy deposits occur where the landlord has started the process to return the deposit (via an application to the deposit scheme provider), but the tenant does not respond and cannot be contacted.

Monitoring of the schemes has highlighted the previously unforeseen issue of deposits remaining unclaimed some significant time after the tenancy has ended. A review of tenancy deposit schemes in 2018^[122] explored this issue further. It found that the majority of unclaimed deposits belong to students, in particular, overseas students who regularly return home without claiming their money back from the schemes. In addition, some of the larger unclaimed deposits relate to tenancies taken out by companies on behalf of their employees. Despite work by each of the schemes to return unclaimed deposits, there is now around £4 million of unclaimed tenant deposit funds between the three approved deposit schemes.

Scottish Ministers now wish to address this issue and take the necessary steps to enable the use of the current unclaimed funds, reinvesting them to the benefit of tenants living in the PRS.

Sectors and Groups Affected

The main sectors and groups who could be directly affected by the various options considered include:

• Private tenants
• Tenancy Deposit Schemes

Option 1 – Do nothing (Business as usual)

In this option, current regulations would remain the same and no action would be taken to enable the use of unclaimed deposit funds.

The Scottish Ministers do not think this is an appropriate option. Doing nothing would not address the issue of unclaimed tenancy deposit funds and would not allow for them to be used to the benefit of private tenants. Instead, they would be likely to continue to increase and remain with deposit scheme providers indefinitely.

Option 2 – Non-regulatory measures

The Scottish Ministers do not consider that non-regulatory action could address the issue of unclaimed tenancy deposit funds that have built up since the schemes began operating. This is because there are no existing powers to enable the Scottish Minsters to make use of unclaimed deposits and primary legislation is required to create these powers.

Benefits

Not applicable.

Costs

Not applicable.

Option 3 – Legislate (preferred option)

This option would see legislative changes to allow for the use of unclaimed tenancy deposit funds and to limit the use of the unclaimed funds to ensure they are used for the benefit of tenants living in the PRS.

Under this option, there would be a clear legal definition of an unclaimed deposit and set statutory reclaim periods within which a former tenant can reclaim a deposit. Regulation-making powers for Scottish Ministers would allow the purposes that unclaimed funds can be used for to be amended. Scottish Ministers would also be able to repay an amount of a tenancy deposit where a former tenant had failed to reclaim within the prescribed period but had a reasonable excuse for this.

As part of the BRIA consultation, we engaged separately with each of the three approved tenancy deposit schemes – LPS (Letting Protection Service) Scotland, mydeposits Scotland and Safe Deposit Scotland – on the proposals to enable unclaimed deposit money to be used for the benefit of PRS tenants and the impact and costs to their business. Overall, the schemes did not see costs to adapt their IT systems to accommodate the measures as significant. One scheme indicated that the costs could be absorbed, with another scheme estimating a one-off cost of approximately £20,000.

Benefits

Private tenants

Around £4 million of tenancy deposits which are due to be returned to private tenants remain unclaimed. The measures in the Bill will ensure that this money can be put to good use and directed towards activities which benefit other private tenants including providing or securing the provision of:

• advice, information or assistance to private tenants in relation to their rights as tenants;
• other services or facilities that promote or support the interest of such tenants; and
• preventing private tenants from becoming homeless.

Former tenants will also benefit from measures in the Bill that give Scottish Ministers a power to pay back a tenancy deposit after unclaimed funds have been transferred to Scottish Ministers, where they have a reasonable excuse for not having made a relevant application for the return of the deposit within the prescribed period.

Tenancy deposit schemes will benefit from a consistent and clear definition of an unclaimed tenancy deposit, helping in the monitoring and administration of scheme requirements.

Costs

Tenancy deposit schemes

There may be some additional costs associated with the implementation of these provisions for the three approved tenancy deposit schemes. These relate to changes required to IT systems, updating of information for tenants, development of new procedures and the updating of guidance.

Engagement with the three approved tenancy deposit schemes indicated that there may be some IT system changes required as a result of these provisions, for example in relation to a legislative definition of an unclaimed deposit and recording information in relation to reasonable efforts to return an unclaimed deposit. Each scheme operates different IT systems and exact costs will therefore differ; however, overall, the schemes did not see costs to adapt their IT systems as significant. One scheme indicated that the costs could be absorbed, with another scheme estimating a one-off cost of approximately £20,000.

There may be some additional staff time for approved schemes required in relation to the updating of information for tenants, scheme guidance on reasonable efforts and internal policies and procedures. The exact cost of these will be dependent on existing practice, but again any additional costs are not assessed as significant.

It is anticipated that any additional costs incurred by the three approved schemes in relation to these provisions can be offset against the interest generated by unclaimed deposit funds.