17 Apr 2014

Deposit protection scheme flaws leave tenants at risk

Data Correspondent and Presenter

For almost a decade landlords have been obliged by law to protect their tenants’ deposits. But Channel 4 News finds the protection on offer can’t stop a rogue letting agent in his tracks.

Last November Channel 4 News tracked down lettings agent Daniel Burton, a self-styled property guru, who ran seminars for people looking to get rich quick through the rental market.

His company Unida Place disappeared along with tens of thousands of pounds owed to dozens of tenants. Unida Place was renting from landlords and subletting properties as single rooms, maximising their profits by gettting as many tenants in as possible.

Unprotected deposits

Mr Burton had complied with the law by registering deposits with one of the government approved protection schemes – MyDeposits. It is an insurance-based scheme, which means the landlord or letting agent is allowed to keep hold of the money for the duration of the tenancy.

However Channel 4 News has learned that Mr Burton was expelled by MyDeposits for failing to comply with its procedures.

You might think landlords or letting agents who flout the rules are the very people you would want deposit protection from. But in this case the MyDeposits scheme was powerless to protect tenants’ deposits from the landlord they had expelled.

Following his expulsion, MyDeposits wrote to Mr Burton’s tenants telling them they had three months before their deposits became “unprotected” and the expelled letting agent was left with £145,000 of unprotected deposits sitting in a bank account.

Read more: How safe is my deposit? What renters need to know

The same would apply if a landlord or letting agent chose to cancel their membership with the scheme, which raises questions about the extent to which the system is open to abuse.

But Eddie Hooker CEO of MyDeposits told Channel 4 News that it was simply following the rules set out in the relevant legislation and once Unida Place was no longer a member of their scheme the deposits became unprotected.

Campaigners say the current situation is unacceptable. Alex Hilton, of Generation Rent, told Channel 4 News the system was failing to live up to its name: “it’s a tenancy deposit protection scheme – they have told people that their deposits are protected: they’ve got to protect the deposit.”

MyDeposits said that 99 per cent of tenants receive their deposit back at the end of the tenancy either in full or with deductions agreed by them with their landlord or agent.

Last year Mr Burton told Channel 4 News: “I have held my hands up, you know, I’ve gone away from the company and I’ve said, I will guarantee that everyone’s deposit and any monies owed to them whether that’s rent in advance as well, will be paid back.”

Four months on some former tenants say they have not heard a thing from Daniel Burton.

Crackdown begins

A Department for Communities and Local Government spokesman said: “We’re determined to crack down on landlords who don’t obey the law. Landlords are required to protect tenancy deposits and if they don’t they’re breaking the law.

“Where a deposit has not been properly protected tenants are well within their rights to take court action where a judge could require the landlord to pay up to three times the deposit amount.

“We’ve given councils £6.7million to tackle rogue landlords in their area, and are changing the rules so letting agents must belong to a redress scheme so landlords and tenants have somewhere to go when they don’t get the service they deserve.”