Tenancy Deposit Scheme: review

Feedback from the tenancy deposit schemes

Methodology

A written questionnaire was issued to all three schemes via email by the Scottish Government. schemes were informed that Scottish Government officials were available for consultation via telephone if required. Schemes submitted their written responses by email after a four-week period.

Key Findings:

These findings reflect the summary views of the three tenancy deposit schemes. In parts, the findings may reflect the views of one or two of the schemes rather than a consensus. Some of the feedback given about efficiencies experienced at operational level may give commercial advantage and therefore has not been disclosed.

General Reflections:

The operation of the tenancy deposit service required more direct support with tenants and landlords than originally anticipated throughout most stages of the service from original deposit to final repayment.

There is evidence that early education and support provided by schemes is improving performance.

All schemes reported the impact of low interest rates compared to their original business plans. In particular, five-year rates offered now are lower than those achieved in 2013/14. This will have an effect on account surpluses in the future if the rates do not increase, as schemes are not allowed to charge fees to tenants or landlords and so interest from deposits is their only source of income in Scotland.

Reduction of Unclaimed Deposits

The schemes were asked about unclaimed deposits and actions that could mitigate this issue. Unclaimed deposits occur where a tenant could claim all or some of their deposit money back at the end of the tenancy but does not. These deposits continue to be protected by the schemes and the Scottish Government is exploring how best to deal with this issue.

The majority 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.

When asked about actions taken to return deposits, all schemes reported that they continue to chase tenants at the end of their tenancy to return deposits but this becomes more difficult where contact information is no longer valid, for example, university email addresses.

All schemes agreed in principle with the Scottish Government's proposal to explore the reinvestment of unclaimed deposits after a five-year expiry period with no current risk to business viability. Reinvestment and impact on business would be kept under review as part of general business risk management.

Governance review follow up

In early 2017, an initial governance review was conducted with the three schemes. Four of the specific issues that emerged from that review were also covered in this piece of work, and the findings for each are shown below:

Bank Charges

Bank charges for overseas payments often exceed the interest that has been earned on the deposit. Schemes in England & Wales and Northern Ireland are permitted to charge for this service but those in Scotland are not.

System Efficiency and Automation

The delay in receiving the funds relating to tenancy deposit protection transfers from one scheme to another is an issue. There is a model used in England & Wales, which includes timescales and the sharing of information which the schemes in Scotland would like to adopt. However, low interest rates stifle income and this may restrict system investments, innovation and improvements.

Review process for dispute resolution decisions

There is opportunity to streamline process across the schemes including the use of common templates to help landlords fulfil their duty to provide the required information to their tenants.

A further suggestion offered was that the application of the Dispute Resolution Scheme could be reviewed to ensure consistency across the three schemes.

Key Performance Indicators

Schemes reported that the key performance indicator requirements continue to be fit for purpose. However there were minor requests for changes including moving the deadline for the audited accounts to be slightly later in the financial year.

Composition of Boards

None of the boards were established to represent the voice of tenants. However, the views of tenants and landlords are captured through landlord forums, Shelter Scotland and by independent scheme customer satisfaction surveys.

It is noted that the scheme administrators have little influence on board membership but only one scheme declared a current female board member. Board membership is dependent on company partnership arrangements and/or existing governance arrangements within parent companies. The specific arrangements are detailed below.

MyDeposits Scotland

My Deposit Scotland is the trading name of Tenancy Deposit (Scotland) Limited which is a is a wholly owned subsidiary of Tenancy Deposit Solutions Limited.

The company is jointly owned by the National Landlords Association and HFIS plc T/A Hamilton Fraser Insurance (the scheme Administrator).

Whilst the Scottish Scheme has directors, these directors are the same as Tenancy Deposit Solutions Limited and governance of all the tenancy deposit scheme is undertaken at this level. Two board directors are drawn from each partner organisation. HFIS PLC has no affiliation to any landlord, agent or tenant organisation. There is limited opportunity to influence board membership.

The main Board of Tenancy Deposit Solutions Limited allows for a refresh of the directors once every five years, or if a director leaves the employment of either of the two organisations.

Letting Protection Service Scotland

Letting Protection Service Scotland is a business unit within Computershare Investor Services plc (CIS PLC) a subsidiary of its ultimate parent company, Computershare Limited (ASX:CPU). There is no board that relates directly to Letting Protection Service Scotland. a managing director responsible for the long term prosperity of the tenancy deposit scheme reports back to the Computershare board members.

Board membership is not applicable to the Letting Protection Service Scotland.

Similarly, reviewing/appointing board membership is not applicable to the Letting Protection Service Scotland.

Safe Deposits Scotland

Safe Deposits Scotland's board directors are appointed by each of the four members of the company: The Scottish Association of Landlords, the Royal Institution of Chartered Surveyors; The Dispute Service Limited and Propertymark ARLA. The articles currently do not allow for additional directors. The Chair is appointed by the Board and is an independent director.

The Board of Safe Deposit Scotland evaluates itself on an annual basis and regularly reviews the skillset of directors against the business need. This process has not yet evidenced a need for change.

Equalities

All three schemes have equality policies in place. There is a clear investment to promote equality and eliminate discrimination across all schemes which is mainly developed at corporate level to ensure consistent local delivery across the companies.

Regulations

There is a broad consensus that the 2011 Tenancy Deposit Scheme regulations continue to provide a robust regulatory framework for the protection of tenants' deposits and the conditions for the operation of the schemes.

There are some potential discrepancies highlighted by the schemes across the regulations, emerging practice, and the new private residential tenancy. There are also a few areas where clarification and expansion in the regulations may help with operational delivery.

Schemes reported that the dispute resolution mechanism may benefit from a more consistent and transparent approach across the schemes.

Finally, the duty to provide information to local authorities about landlord registration is resource intensive and schemes are unsure if the information is helpful to local authorities.