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PROPERTYdrum Comment - The Tenancy Deposit Scheme debacle

publication date: Mar 9, 2010
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The recent invoices from Tenancy Deposit Scheme have been met with shock and horror. There is a certain irony here; a massive row is caused by legislation on disputes and the TDS efforts to service that legislation. There have been complaints by the hundred, very strong opinions, fury, despair and severe disgruntlement. Going back to the beginning, the legislation that created the need for deposit protection organisations was designed to protect the tenant from unfairly losing his deposit.

Agents were required to either lodge their landlords’ deposits with a custodial scheme or, if members of one of the professional associations, pay a small premium to an insured scheme. The latter was more attractive to agents as it meant they could continue to hold the deposits. Agents were persuaded to join one of the insured schemes, The Dispute Service (TDS) on the basis that the TDS would resolve disputes on their behalf.

The fees for the service were based on projections on the number of disputes likely to be sufficiently serious to be referred each year. Two surprises followed. Firstly, tenants quickly became very aware of their rights, more frequently arguing their case for the return of their deposit in full. Secondly, agents took the easy route (in some cases) and referred every dispute, major or minor to the TDS.

The result was an overworked organisation which went from having £1 million in the bank (as shown on their accounts) to facing a severe shortage of money in the coming year. Their solution was drastic, rapid and universally deplored. Fee calculations were changed from ‘fees per branch’ to ‘fees per tenancy’. This may have been acceptable, if it had been set that way at the beginning, It seems logical to charge per tenancy.

The second change was a ‘penalty’ payment levied on agents who had ‘more than the average in the previous year’. Again, on the surface, quite rational.

The big issue with both these changes is that they were applied without notice, without recourse, without clarification and without due consideration.

PROPERTYdrum reported in October 2009 that, “The Chairman of the Board of The Dispute Service Ltd, John Hornsey, warns that the rise [in referred cases] has forced costs up by 42 per cent. Expenditure for the current year will be met from reserves, but if the volume of disputes is sustained, or continues to rise, increases in subscriptions will be unavoidable.”

Based on that, agents may have budgeted for an increase in fees of 50 or even 60 per cent so they were totally unprepared for the shock that landed on their desks.

One agent, with 116 tenancies, had four modest claims last year. Their fee for 2009- 10, was £1050. This year’s was £5220, an increase of 397 per cent, equivalent to £45 per tenancy. Another, larger agent, needed the smelling salts after receiving an invoice showing a fee 11 times that of last year.

The TDS office phone lines were permanently engaged with frustrated agents; those who couldn’t get through turned to their professional bodies. An ARLA survey received 1100 responses along with 250 complaints. NALS and The Guild of Letting and Management were similarly besieged. Robert Jordan, who was involved, as President of ARLA at the time, in the creation of the TDS, wrote to ARLA members promising to gain a resolution.

After a turbulent week and a heated board meeting, the TDS announced that it will re-invoice some firms. “A new flat rate charge per tenancy for NFOPP and RICS firms is to be £15. However, the average charge per tenancy through the TDS will be £11.22 as the discounts will be retained for firms who have only made limited use of the scheme.

All subscriptions for the second half of 2010/11 will be re-calculated in July on the basis of the number of live tenancies registered at the time. The Board has also accepted that there is a desire for quarterly payments of the subscription. The first half of the first instalment must be paid by March 31 and the second by June 30. Payments for the revised second instalment will also be accepted quarterly.”

NALS members have a renegotiated flat rate of £18 per tenancy, but they are still unhappy about the disparity between their members and those of ARLA. Caroline Pickering, NALS Chair said, “As the first organisation to call for clarity on the new TDS pricing structure we now call on TDS to inform NALS firms in the immediate future of the more detailed explanation of the charges to the subscription to the Scheme with revised invoices.”

The Guild of Letting and Management’s members do not receive discounts and CEO Susie Crolla told PROPERTYdrum. “We have been inundated with complaints. Members of all the organisations, not just ours, are telling us that they will withdraw from the scheme. It’s not just about the cost either, it is the lack of clarification and arrogance in the way the invoices have been issued that has upset agents.”