Fresh warnings have been sounded that ‘many’ Scottish letting agents will go bust as a result of the new tenancy deposit law, with a collective black hole in their accounts that could be as high as £50m – leaving landlords legally accountable.
As has already been reported on this site, a record number of letting agents in Scotland are trying to sell up in advance of the November deadline requiring them to place all tenants’ deposit money, on both new and ongoing tenancies, in a custodial scheme.
But the latest wave of warnings is the most serious yet, and forecasts that the law may have the exact opposite effect to what was intended – that many agents will go out of business, taking with them large sums of tenancy deposit money.
That could mean a substantial knock-on effect for landlords, who would be forced to find the money for their tenants.
In the last 24 hours, Landlord Today has already heard that some letting agents have simply done a bunk, while there are forecasts that this time next year, half of all Scottish letting agents will have gone out of business.
Any private landlord with a property in Scotland and where the agent has taken a deposit is urged to act now to clarify exactly where that deposit is, and to take steps to ensure that it is properly protected and with the prescribed information supplied to the tenant.
Serious concerns were expressed at a recent debate on client money protection hosted by software company VTUK, where experts warned of the significant financial pressures facing Scotland’s lettings and management agents.
The debate was attended by a number of key players from the lettings sector, including Ian Potter, managing director of ARLA, representatives from the Scottish Federation of Housing Associations (SFHA), Shelter Scotland, and major Scottish agents including Ben Property and Grants Property Management, plus Elaine Murray, Scotland’s shadow housing minister.
While the consensus view from debate attendees was that any measures introduced that increased consumer protection should be applauded, concerns were raised on agents’ ability to find the required finance for the scheme.
Peter Grant, managing director of VTUK, said: “Many Scottish agents have used tenants’ deposits for their own businesses’ working capital requirements.
“The clock is now ticking and agents have until November 2 to find the finance required in order to place deposits into one of the three approved schemes.
“Given current economic conditions and the restrictions banks are placing on lending, there is a real danger that many agents simply won’t find the money and will go out of business, leaving landlords and tenants significantly out of pocket.
“It was stated at the debate that Scottish agents could potentially have a collective £30m-£50m hole in their accounts, which really demonstrates the extent of this problem.
“The issue is compounded further, as the Scottish legislation only allows custodial schemes, where deposits are required to be physically transferred to one of the three schemes, whereas the legislation introduced in England and Wales allows for insurance based schemes which enable agents to pay a fee to insure the deposit, removing the need for a physical transfer of funds.
“I am genuinely concerned that the tenancy deposit legislation introduced in Scotland could result in a swathe of administrations, particularly amongst the smaller, independent agents, that would be damaging for the industry and consumers alike.
“Additionally, the scheme offers no protection for money outside of the deposit, such as the rent. So while the introduction of the scheme is certainly a positive, the strong message emanating from the debate was that more can be done and the legislation introduced, in its current form, could well create as many problems as it provides solutions.”