Passporting of tenancy deposits

The government has started 2020 by showing it will not leave the private rented sector alone. The latest idea to be buzzing around Westminster concerns passporting of tenancy deposits.

Passporting of Tenancy Deposits

The government seems to be inclined to consider breaking up the way tenancy deposits are handled, in yet another move to continue to curry favour with tenants. A consultation is under way now, which was initially announced by Communities Secretary, James Brokenshire last year.

The consultation is considering “tenancy deposit passporting”, in which a tenancy deposit is somehow passported from one landlord to the next.

The government has already been tinkering with deposits.

Last year, they limited tenancy deposits to 5 weeks’ rent (unless rent is over £50K per annum when it can be 6 weeks’ rent) and they also banned landlords and letting agents from making any charges at all in connection with setting up a tenancy, even for valid costs like referencing.

So why is the government looking at deposits again?

The concern that some apparently have is that tenants struggle to get money for a deposit on a new property rental because they have not yet got their deposit back on their old property.

Passporting of Tenancy Deposits Assumes Tenants Have Cash Flow Issues

Passporting of tenancy deposit is an idea that seems to pre-suppose that many tenants, who are between tenancies, don’t have cash savings of more than “10 weeks plus one months rent”, (this being made up of 5 weeks for the old deposit, 5 weeks for the new one and the usual months’ rent in advance).

Well, it certainly can take more than a day to get the old deposit back for most tenants, so yes, there is a bit of a cash flow issue here for tenants who are moving to a new landlord.

Not all landlords are like us. I must first explain that I don’t use letting agents at all. We do inspections on the day the tenants move out, (with our inventory clerk, if necessary), and agree any deductions from the deposit with the tenant, there and then, on the spot. In 95% of our lets there are no deductions to be made and the tenant is wired by bank transfer the whole of their deposit before they have even driven off to their new home.

Where letting agents are “in the way” and for landlords who are not as efficient as us, I’m aware there is often a delay experienced by tenants in getting their old deposit back.

This is because most letting agents and many landlords are hopeless in making tenants aware of what they have to do to get their deposits back in full. For example, telling them they have to do scary things like cleaning!

By neglecting to properly manage what I call “end tenancy processes”, this often results in deductions for items like cleaning having to be made. This leads to delays whilst the costs are worked out and agreed or arbitrated on. Plus, most letting agents simply don’t see returning tenants’ deposits as a priority.

Tenancy Deposit Schemes – The Rules

That said, delays should not be too long, because under the rules of the existing tenancy deposit schemes, tenants deposits must be returned within 10 days, unless a deduction is going to be made. If there is a deduction due to damage etc, the level of that deduction must be set out in the same time frame, with the balance of the deposit paid out to the tenant – again within 10 days.

Only if there is a dispute, do the various deposit schemes adjudication procedures kick in. There is no time frame for these procedures, as far as I’m aware, though I have always had the impression that the adjudication schemes, (which are free), seem to act fairly quickly and fairly impartially. I have certainly not heard of any gripes about the adjudicators’ speed or impartiality from the likes of perennial whingers, Shelter or Generation Rent.

So, is there really a problem? Or is this just a case of the government, once more, wanting to be “seen to be doing something” to be nice to tenants, to keep them on side for the far away 2024 election.

Tenancy Deposit Passporting – Our View

Here is my view: It is a shame that tenants may have cash flow problems that mean they don’t have access to 10 weeks’ rent for deposits plus a months’ rent. But maybe the government should be asking themselves if this is something that is a result of their policies – like tuition fees and taxation.

Perhaps, next the government will be telling the travel industry that it’s not fair for them to ask folks who happen to be renting to pay a deposit in advance for a holiday or to pay for an air ticket months in advance! Perhaps universities should not ask for a whole term accommodation fees in advance? Where could it all end?

I find it all a bit extraordinary really.

Personally, I would never let to a tenant who did not have money in the bank or cash which is easily accessible, equivalent to at least 3 months’ rent. As part of our tenant validation checks I ask to see 3 months’ bank statements proving this to be the case. I do not want to take a tenant on who is close to not being able to pay the rent.

By all means, the government should look at the current tenancy deposit scheme system to see if say, the adjudication processes could work better and faster.

Enforce the Tenancy Deposit Protection Regulations

And I would like to see far heavier penalties for landlords who do not bother protecting deposits at all. For that we need proper enforcement – which means boots on the ground. But actual enforcement of the myriad of laws in the private rented sector is something the government has continually failed on.

But they way I see it, this is a non-issue.

I cannot see how passporting could be made to work in the current tenancy deposit scheme system, which would need to be completely modified if passporting was bought in. If I have to wait for the tenants’ previous landlord to release a deposit to be passported to me, I would need some insurance to pay out, if that deposit was not released. That would cost money. Who would pay for that? Well, the extra costs would be passed on and the end customer always pays – in this case the tenant.

Of course, the deposit amounts are likely to be different. How would that then work?

Tenancy deposit passporting looking like an idea that is not needed and which would be complex, costly and very hard to make work.

Make the current tenancy deposit schemes work better, if necessary, but please can we ditch this daft passporting idea.

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