Fresh warnings have been sounded that ‘many’ Scottish letting agents will go bust as a result of the new tenancy deposit law, with a collective black hole in their accounts that could be as high as £50m.
As has already been reported on this site, a record number of letting agents in Scotland are trying to sell up in advance of the November deadline requiring them to place all tenants’ deposit money, on both new and ongoing tenancies, in a custodial scheme.
But the latest wave of warnings is the most serious yet, and forecasts that the law may have the exact opposite effect to what was intended – that many agents will go out of business, taking with them large sums of tenancy deposit money.
That could mean a substantial knock-on effect for landlords, who would be forced to find the money for their tenants.
Serious concerns were expressed at a recent debate on client money protection hosted by software company VTUK, where experts warned of the significant financial pressures facing Scotland’s lettings and management agents.
The debate was attended by a number of key players from the lettings sector, including Ian Potter, managing director of ARLA, representatives from the Scottish Federation of Housing Associations (SFHA), Shelter Scotland, and major Scottish agents including Ben Property and Grants Property Management, plus Elaine Murray, Scotland’s shadow housing minister.
While the consensus view from debate attendees was that any measures introduced that increased consumer protection should be applauded, concerns were raised on agents’ ability to find the required finance for the scheme.
Peter Grant, managing director of VTUK, said: “Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements.
“The clock is now ticking and agents have until November 2 to find the finance required in order to place deposits into one of the three approved schemes.
“Given current economic conditions and the restrictions banks are placing on lending, there is a real danger that many agents simply won’t find the money and will go out of business, leaving landlords and tenants significantly out of pocket.
“It was stated at the debate that Scottish agents could potentially have a collective £30m-£50m hole in their accounts, which really demonstrates the extent of this problem.
“The issue is compounded further, as the Scottish legislation only allows custodial schemes, where deposits are required to be physically transferred to one of the three schemes, whereas the legislation introduced in England and Wales allows for insurance based schemes which enable agents to pay a fee to insure the deposit, removing the need for a physical transfer of funds.
“I am genuinely concerned that the tenancy deposit legislation introduced in Scotland could result in a swathe of administrations, particularly amongst the smaller, independent agents, that would be damaging for the industry and consumers alike.
“Additionally, the scheme offers no protection for money outside of the deposit, such as the rent. So while the introduction of the scheme is certainly a positive, the strong message emanating from the debate was that more can be done and the legislation introduced, in its current form, could well create as many problems as it provides solutions.”
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Comments
Good. I hope they all go bust, the world would be a better place.
They charge over the top fees for everything and often charge both the landlord and tenant for the same work.
£60 every 6 months for renewing, £120 checkout fee, £60 check in and inventory fee.
When is this campaign coming to the rest of the UK?
I suspect £50m is conservative. I have been offered 3 businesses in 6 months in London with a combined 'hole' of over £2.4m. Scary
Nicking clients money even with the intention of repaying is illegal.
Deposit schemes are great - BUT Here's a shocker.
TDS schemes protect tenants. They DONT protect Landlords owed money for dilapidations or unpaid rent which could normally be deducted from a deposit - but not a missing deposit
Those agents who offer the mantra "I dont need to be regulated - I have been trading 200 years without a problem and never do anything wrong" dont help.
"“Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements."
THIS is why HM Government will not legislate. They will be watching carefully to see what happens in Scotland - but whatever the outcome - it will much, much worse in England.
Grant Shapps wants self regulation to weed out the worst offenders through attrition. He believes by educating consumer to use regulated agents, the worst offenders will go bust. Sadly - the public favour low fees over low risk.
If HMG regulate, many agents will go bust and lots of voters will lose money and jobs.
Frankly they deserve to and the Government refusal to bite the bullet for many years has compounded the problem.
James - absolutely spot on, I agree 100%.
Ray Evans - for people like you and me who are fundamentally honest the checks you suggest are perfectly adequate. However, if I was so minded it wouldn't be that difficult to nick a substantial sum from my client account and conceal the fact from my accountant with a bit of creative accounting and shuffling money around.
Incidentally, I'm a franchisee and for me the biggest risk of getting caught nicking client money would be in one of my franchisor's occasional random spot checks.
I have no sympathy with these agents at all. In fact quite the opposite. I hope they do close down.
Any agent using client money has had the benefit of an unfair advantage over agents who only use their income to try and run their business. All too often our smaller, newer competitors seem to be able to embark on large marketing campaigns, ridiculous commission offers and pay huge salaries to poach staff. It is pretty clear how they are doing this.
Frankly it is about time that legislation was introduced to protect those agents who run their businesses correctly.
“The clock is now ticking and agents have until November 2 to find the finance required in order to place deposits into one of the three approved schemes".
No, they have until someone (trading standards presumably) gets round to enforcing it. Could be years!
ALL solicitors money is covered by the law society
@ Dave - a solicitor? Are you serious or just naive? Have you never heard of solicitors taking their clients' money?
The only safe and reasonable foolproof system is for ALL deposits to be in a custodial scheme like the DPS.
@dave on 2012-08-30 09:18:13
An accountant should check the books and bank statements. My own checked and balanced at least three dates throughout the year in question. . As said, not perfect and I do not say it is eneough but it is something until WELL thought through legislation is in place?
@dave on 2012-08-30 09:18:13
A Solicitor!
I have no sympathy, that money was never anyone other than the Tenant's - they've stolen from their tenants. It's this sort of thing that makes people think we are *all* a bunch of crooks.
It is the Landlords who should be afraid...after all if the Agent goes bust he is still liable for the deposit. If I was a Landlord I would be hurrying round to my Agent to have it released to me....Northern Rock then springs to mind.
but that gives the opportunity to take a short term loan just to satisfy the accountant
tenant deposits should be guarded from being spent by the managers of the money
perhaps a solicitor should hold them?
Is it not a fact that NAEA, ARLA & RICS (etc.) agents are required to have their Client Deposits checked and balanced annually by an accountant and a written report submitted? Not perfect, but a considerable element of control.
fairpak did just the same
I have no idea why it is legal
whats wrong with trading within your means...me thinks it funds other ventures/cars/lifestyle
He said: Peter Grant, managing director of VTUK, said: “Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements.
What he meant was: Agents have STOLEN tenant's money.
If they go bust, they deserve to. This is what Shelter SHOULD be concentrating on, NOT agents' fees.