2. POLICY BACKGROUND
2.1 The private rented sector plays a vital role in the Scottish housing market. We want to set the right conditions to enable the private rented sector to contribute more fully to meeting housing need. We recognise that the majority of landlords already operate to good standards, and we want to encourage continued improvement in the sector. The Scottish Government wants to ensure that we have the right balance of policies and legislative protection to allow the Private Rented Sector to flourish.
2.2 National mandatory tenancy deposit schemes will provide benefits for both tenants and landlords by encouraging a more professional approach to tenancy deposit practice and further improving the sector's reputation as a desirable housing option.
Evidence on tenancy deposits
2.3 Evidence on tenant and landlord experiences of tenancy deposit practice was gathered as part of the Review of the Private Rented Sector, published in March 2009. The evidence available indicates that a significant number of tenants feel that their deposit has been unfairly withheld. The Review included two tenant surveys which featured questions relating to tenancy deposit practice. It also featured a landlord survey which asked questions on whether landlords follow good practice in deposit management and whether they have experienced any disputes with tenants about the return of a deposit. We have also obtained evidence on how existing tenancy deposit schemes operate in England and Wales, and other countries.
2.4 Based on data from the Review, we estimate that about three quarters of the approximately 233,000 households in the private rented sector had paid a deposit. Estimates of the total amount of deposits held by landlords at any one time range from £63.6m to £74.2m, with the amount paid each year ranging from £27.4m to £31.9m. Approximately one quarter to one third of households seeking return of their deposit had some or all of it withheld, i.e., 18,000 to 26,000 tenancies per year. In monetary terms, this ranged from £5.3m to £8.4m. Where deposits were withheld in whole or part, approximately three quarters of tenants considered that the landlord or agent behaved unfairly. This would suggest that £3.7m to £6m is considered by tenants to be unfairly withheld each year, affecting between 13,000 and 19,000 tenants.
2.5 It is not possible to tell how many deposits were actually unfairly withheld in objective terms. For example, a tenant's perception of whether a property needs to be cleaned may differ from a landlord's. However, we understand that between 50% and 60% of tenants disputing the withholding of deposits in two of the tenancy deposit schemes operating in England and Wales were successful. Assuming a similar situation in Scotland and applying the 60% figure to the numbers above would suggest that the actual amount of wrongly withheld deposits in Scotland may be between £2.2 million and £3.6 million, due to be repaid to between 8,000 and 11,000 tenants in the private rented sector.
Disputes over withheld tenancy deposits
2.6 Currently, where there is a dispute over a withheld deposit in Scotland, the former tenant can seek recovery of the amount withheld in the sheriff court. Although the small claims procedure may be applicable in most cases, some tenants are not confident about taking legal action. Anecdotal evidence suggests that tenants are reluctant to seek redress through the small claims court due to the complexity, cost and length of time involved. Furthermore, if the landlord does not accede to the court order, the responsibility to enforce it lies with the former tenant, and involves the trouble and expense of engaging a sheriff officer. If the landlord has insufficient assets, it may be that no money can be recovered.
2.7 Where the tenant and landlord cannot agree on the return of a deposit at the end of a tenancy, it is important to resolve the dispute in good time. Any delay or non-return of deposit can be a particular issue for vulnerable tenants who rely on the private rented sector for their accommodation. It can also affect the freedom of movement in the sector where the return of the deposit is required to fund the deposit for the next tenancy. Concerns about the return of deposits may also dissuade people from thinking of a private let as a desirable housing option.
2.8 It is difficult to predict exactly how many disputes might arise, once a tenancy deposit scheme is established. However, based on evidence gathered in the Review and the experiences of the schemes operating in England and Wales, we estimate that approximately 2,500 disputes may be raised in Scotland per year. Taking into account the number of cases that may not be pursued (case rejected or resolved by other means) we estimate a potential caseload of around 1,925 disputes requiring formal adjudication each year. It is our intention to facilitate access to a dispute resolution service that will provide formal adjudication on disputed tenancy deposits as an alternative to taking legal action through the courts.
The Housing (Scotland) Act 2006
2.9 The 2006 Act gives Scottish Ministers the power to introduce regulations that tenancy deposit schemes must comply with prior to obtaining approval to operate as a national, mandatory scheme. Scottish Ministers may approve more than one scheme. All private sector landlords letting property in Scotland, and receiving a tenancy deposit in connection with a tenancy type covered by the regulations, would be required by law to join one of the approved schemes. Once the regulations are in force, Ministers will consider schemes as and when they are proposed. Approval will not be given to proposed schemes if they cannot demonstrate that they meet the conditions that will be set out in tenancy deposit regulations.
2.10 There is no relationship between Scottish Ministers and the administrator of an approved scheme that would warrant a contract between them. A contract will only be appropriate if any financial assistance is provided to a scheme, and funding agreement conditions are likely to relate to the use of grant funds rather than the scheme itself. Schemes will be managed by the ongoing requirement to meet the conditions in the regulations, rather than by contractual arrangements.
2.11 It is therefore important to give careful consideration to the conditions for approval to reduce the likelihood of unsuitable schemes being proposed and to ensure that approved schemes are viable in the Scottish context. Our aim is not to produce restrictive regulations that set out the fine detail of the design of a scheme. Rather we aim to put in place a framework that allows freedom in the market place to develop and propose an effective scheme that meets our key policy requirements.
Safeguarding tenancy deposits stakeholder working group
2.12 The stakeholder working group which was set up to consider the options for improving tenancy deposit practice is comprised the following key members:
- Association of Residential Letting Agents
- Chartered Institute of Housing
- Citizens Advice Scotland
- Consumer Focus Scotland
- Convention of Scottish Local Authorities
- National Association of Estate Agents
- National Union of Students
- Royal Institution of Chartered Surveyors
- Scottish Association of Landlords
- Scottish Council for Single Homeless
- Scottish Rural Property and Business Association