Landlords are still pocketing money from deposits using unfair tactics. We want to put a stop to it

As landlords and renters get to grips with the changes that the Renters’ Rights Act ushered in last month, the government has turned its attention to one of the older protections that renters have: deposits.

This time we’re not expecting another law to crawl its way through parliament. Instead, changes to the system should come through a procurement process this summer, with the potential to put hundreds of pounds back in renters’ pockets when they move.

Since the late 2000s, landlords in England and Wales can only take a security deposit from their tenant if they protect it in one of three government-approved schemes. If the deposit isn’t protected, the tenant can’t be evicted in most circumstances and can seek compensation worth up to three times the deposit’s value.

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At the end of the tenancy, the landlord can make a claim on the deposit and the scheme can adjudicate if the tenant doesn’t agree with it.

In some respects, the system works well. Using data from Tenancy Deposit Scheme (TDS), one of the schemes, Generation Rent estimates that renters who challenge their landlord’s claim get an average of 79% of their deposit back, while one in three get all of it back.

Unfortunately, many renters don’t get that far. One in four told an Opinium poll that they faced unreasonable deductions at the end of their last tenancy. But of this group, just one in five raised a dispute with the protection scheme.

A number of factors cause this low uptake: from the tenants’ own perceptions, including a low rights awareness and lack of faith that a dispute will be handled fairly or quickly, to landlords actively stalling a formal dispute by trying to negotiate a settlement or simply refusing to use the scheme’s dispute process.

The structure of the protection system makes it easier for greedy landlords and letting agents to cling on to as much of their tenant’s money as they can.

Landlords can choose to either lodge the deposit money with the scheme itself for free (known as the custodial system) or pay a fee to insure the cash while holding on to it themselves (the insurance-backed system). All three schemes offer this choice.

Some insurance schemes set a time limit for tenants to request their deposit back at the end of the tenancy, and also don’t require landlords to pay undisputed money to the tenant while a dispute is being adjudicated.

This gives landlords leverage to make unreasonable deductions and encourage renters to settle so they can get back at least some of their money sooner. Of course, for many of us, having just moved home, getting out of our overdraft is paramount, so we can be bounced into giving up some of our money as long as we get enough of it returned quickly. In extreme cases, landlords can drag their feet so much that once the deadline has passed it’s too late to raise a formal dispute, and the landlord pockets it all.

We estimate that 296,000 renter households lose out on hundreds of pounds as a result of these tactics every year.

Throughout this process, tenants have the right to request the deposit directly through the scheme – but it’s not always clear when you’re getting your information from a landlord or agent who doesn’t have your best interests at heart, and will happily warn you of the delays that a dispute will involve.

It’s difficult to get hold of data about deposit schemes, who, despite being appointed by the government, often cite commercial confidentiality when replying to FOI requests. But in 2019, the most recent year we have enough data to make a comparison, releases of custodial deposits were 32% more likely to be disputed than releases of insured deposits, indicating what effect this landlord leverage may have.

Last year we recommended a range of measures that would encourage renters to challenge unfair deposit claims and reunite them with their money more quickly after moving out – including the abolition of insurance-backed schemes.

The government has listened and is now carrying out a reprocurement process for deposit protection, proposing a single provider and only the custodial system of protection.

Letting agents are not happy about losing their insurance option, and until the tender is finalised, it’s not a done deal. While the details are being worked out, we want the government to spell out to bidders that delayed return of deposits is unacceptable.

It should be the landlord’s responsibility – not the tenant’s – to make a claim on the deposit if they have the grounds, and to do this within two weeks of the tenancy’s end, or the scheme returns the cash to the tenant.

The government should also go further and penalise landlords who repeatedly make exaggerated claims that are rejected by the dispute process, to discourage this practice and further bolster trust among tenants in the system.

Generation Rent has launched a petition calling on the housing secretary to make the most of this opportunity to make moving home less stressful than it needs to be. Sign it here.

Dan Wilson Crawis deputy chief executive at Generation Rent.

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