Landlords out of pocket for deposits - DPS may be best after all!

A report published in The Times today highlights the growing problem of landlords having to pay up for deposits, when agents go bust.

Under the two 'insurance based' tenancy deposit schemes (MyDeposits and the Tenancy Deposit Scheme run by the Dispute Service) if the agent deals with the deposit on behalf of the landlord, the agent holds the deposit money. If the agent becomes insolvent, this does not affect the tenant (other than perhaps a delay in getting paid) as the insurance company pays out.

However it will have a serious effect on the landlord. This is because the deposit schemes are entitled to recoup their losses by claiming the money back from the landlord, on tbe basis that the landlord is the employer of the failed agent.

The Times report states that "hundreds of letting agents have ceased trading in recent months" and goes on to report that "MyDeposits has received 279 notifications of a letting agent going into liquidation and being unable to return the deposit". In the majority, if not all of those cases, the landlord will have had to pay.

The problem is more likley to occur with MyDeposits as the Dispute Service are now refusing to accept agents who are not members of ARLA, RICS or a similar professional body.

Landlords letting through non regulated agents should therefore think carefully before allowing the agent to manage the deposit unless it is protected by the Deposit Protection Service where the deposit money is actually lodged with the company so there is no possibility of it being lost.