Insured Tenancy Deposit Scheme – Insurance Against What Exactly?

Insured Tenancy Deposit Scheme – Insurance Against What Exactly?

10:45 AM, 24th June 2013, About 9 years ago 26

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With letting agents going under and causing untold financial mayhem in their wake and in light of the failed Market Deeping agent mentioned in another thread this type of case raises issues with what an “insured” deposit scheme is actually covering.

In the hard times that we live in there are likely to be many more agents that could go the same way so this may be a useful place to get clarity on the matter.

In respect of the aforementioned letting agent, it was said that deposits were dealt with via My Deposits, which I assume is the insurance based scheme so my question is what exactly does the scheme insure against?

I imagine after finding that the letting agent no longer exists the tenant would go to the scheme administrator, in this case My Deposits and request the return of deposit. The administrator would then direct the tenant to the landlord, which in certain circumstances may not be that simple for various reasons, so isn’t the insurance scheme meant to cover the non-payment of a deposit by a landlord in these circumstances by invoking the insurance scheme to reimburse the tenant? I have read Schedule 10 of Sec 212 to the Housing Act 2004 a number of times and sub-section (e) covers this procedure, doesn’t it?

If this is not the case then what is the insurance actually protecting?

I understand the likelihood of a civil claim by the scheme administrator against the landlord to recover any monies they pay out to a tenant, however, is a letting agent considered to be part of an authorised deposit taking institution under FSCS rules? After all tenant deposit procedure is covered by its own law and probably accounts for millions of pounds so it isn’t just a small group of people collecting holiday money for a one-off trip.

If so I assume that either the landlord or My Deposits would have some redress for compensation in the above circumstances?

On the other hand, if the letting agent has not complied with the scheme by failing to keep any deposit monies in a separate client account, or has used the client money for other purposes then wouldn’t that amount to a criminal offence by the agent for which the landlord cannot be held responsible unless proved to be complicit in the act as well?

If this is the case with Bonnie and Clyde of Market Deeping are we to assume that either the landlord(s) or My Deposits will be making the necessary complaints to Lincolnshire Police in order that they can pursue all individuals involved in respect of any criminal wrong-doings? And before anyone mentions Limited Company blah blah, whether they are/were a limited company or not that does not preclude individuals from embezzlement of client money for unconnected purposes!

Constructive views on this subject would be appreciated as it is certainly of relevance to me and no doubt to many others also.




by My Deposits

16:48 PM, 12th July 2013, About 9 years ago

Apologies for the delay in responding, it seems you’ve raised a few issues here which are separate and which I’ll need to address in turn.

1 - Protecting the deposit

Firstly, if an agent becomes bankrupt and the scheme will likely terminate their membership presuming they are made aware. In this instance the deposit will become unprotected. mydeposits will write to both the tenant and the landlord to make them aware also. Importantly, for the landlord, the liability to protect now falls on them.

In such instances the landlord would need to either:

1. Join (if not already a member) and protect the deposit with an insurance scheme (landlords are free to change deposit schemes if they wish). The landlord will then be required to return the deposit to the tenant at the end of the tenancy with or without deductions as per the normal procedures.


2. The landlord can find the deposit money straight away and lodge it with a custodial scheme.

Either way the landlord will need to eventually find the deposit money in full, as it remains the property of the tenant and must be protected as such.

2 - Recovering any money/ losses

This is a separate issue and really depends on whether the agent you enlist misappropriated the client money account funds and, importantly, whether they’re covered by client money protection (CMP) insurance.

If they didn’t misappropriate funds then any appointed administrators would probably work their way through the client money account and, presuming all is as it should be, the deposit money should be paid to the landlord client in due course. If that happens then the landlord will have recovered the deposit money and will be free to negotiate deductions to the deposit with their tenants come the end of the tenancy if using an insurance scheme. If a custodial scheme was used to re-protect the deposit then the initial pay-out would have been recouped and the landlord would go about negotiating deductions as per the custodial scheme process at the end of the tenancy.

However, if the agent did misappropriate client money funds but doesn’t have CMP insurance cover, then the landlord would, unfortunately, lose out. This is why it’s vital to choose an agent who is properly covered. If they do have CMP cover then the landlord can make a claim to cover the cost.

3 - Keeping track of the deposit's status

TDP providers deal only with the registered members of the scheme re the status of the deposit and are not required to keep landlord clients or agent members updated.

My|Deposits write to all landlord clients of our registered agent members at the beginning of the tenancy. Here we would also remind landlords that the ultimate liability falls on them to protect and advise that landlords speak to their agent about deposit protection matters and keeping updated with the deposit’s status from here on in.

However, presuming a landlord can verify who they say they are then they could call our advisers and ask to check the status of a deposit. I’m afraid there is no online facility to do so – only the registered member has online access to deposit accounts.

Alternatively, we offer and online tenant check via our website, so if the landlord has the tenant’s name, address and deposit amount then it is possible to look up the protection this way. However, a search would only return whether the deposit is protected or not – no further information would be given.

I hope this is helpful. Do remember that any postings are not in any way present legal advice or positions.

by Mark Alexander

5:29 AM, 13th July 2013, About 9 years ago

Reply to the comment left by "Sam Haidar" at "12/07/2013 - 16:48":

Hi Sam, I am confused. Your latest post seems to be at odds with your post of 277th June. What is the difference between what you've said now and my original post.

by DC

12:33 PM, 13th July 2013, About 9 years ago

Reply to the comment left by "Sam Haidar" at "12/07/2013 - 16:48":

So as I asked, "Insured Tenancy Deposit Scheme – Insurance Against What Exactly?".

Sam, basically what you are saying now contradicts your earlier response and the insurance scheme will not pay out or cover the deposit when an agent stops trading and there is no money for the landlord to recover.
As I said I have had numerous deposits registered with My Deposits by my agent and I know that My Deposits have my full name and address but My Deposits have never once contacted me at all about anything.
In a nutshell if a landlord uses an agent then deposits are better placed in a custodial scheme where you will not lose a large amount of money if the agent goes out of business.
If I am misunderstanding something here please could you compare your two responses and clarify which is the correct answer?
Also, it would be much better if you could give us the legal answer that we can refer to otherwise none of your responses are worth the paper they are written on.

by DC

21:51 PM, 15th July 2013, About 9 years ago

Mark - In view of the latest response from My Deposits and your suggestion on 25/6 that you had invited Mary Latham to comment on this thread as she was very influential in terms of the regulations, would it be appropriate for you to query this with Mary again as I am confused whether My Deposits actually do insure against anything.

I am grateful that Sam Haidar of My Deposits has come forward to try and answer the issues and as a senior press officer at My Deposits I would hope that he is divulging correct information. My Deposits are one of four bodies that have been granted a licence to administer a lawful scheme by the government and therefore should be 100% aware of how the legislation works. It therefore follows that My Deposits should be in a position to give accurate answers concerning their scheme and do so in a way that their policy can be relied upon. But it appears that their two posts on this particular thread contradict each other somewhat.

The relevant part of the legislation in Schedule 10 states:
(e) insurance is maintained by the scheme administrator in respect of failures by landlords to comply with such directions.

Not according to My Deposits in the most recent post by Sam Haidar.

As we know the landlord is the person ultimately responsible for the requirements surrounding protecting deposits and as far as using the insured scheme is concerned the Schedule does not mention letting agents in this respect. So as the legislation infers, the insurance cover is against the landlord no matter who actually acts on behalf of the landlord, which suggests that either My Deposits are wrong by stating that a landlord would have to dig into his own pocket if the agent who protected the deposit goes bankrupt, or the legislation is wrong?

Putting CMP insurance to one side, I would like to think that the legislation is correct and that a landlord would be insured against his agent going out of business under the terms of this scheme. This was what I thought Sam Haidar actually stated in his initial post. If however, My Deposits are charging an insurance premium under the deposit protection scheme but not actually providing any cover, it may be that many landlords are at risk of losing untold amounts of money when they thought that they had paid for insurance against this.

What is their £18/£24 fee actually for? My Deposits state on their website that you can,
“Use our free, impartial dispute resolution service if you and your tenant cannot agree on the deposit amount to be returned.”

In reality I appreciate that some of the fee would cover arbitration and admin costs. So what proportion actually covers the insurance premium and what is the landlord actually insured against? It appears that their scheme may not offer insurance to the landlord as per the legislation if Sam’s latest response is the correct one.

I think it is in everyone’s interest (landlords and tenants) to clear this up with an answer that does stand up to legal reference.

The original question which started this thread still remains unanswered: Insured Tenancy Deposit Scheme – Insurance Against What Exactly?

by Mark Alexander

22:18 PM, 15th July 2013, About 9 years ago

Reply to the comment left by "DC " at "15/07/2013 - 21:51":

I concur, sam's first response appeared to contradict my understanding. I was very pleased with that response, even though, at that time, it appeared that my initisl response was wrong. However, Sam's subsequent post seems to imply exactly what I stated in the first place, hence my confusion.

Mary hasn't posted here for several weeks now, I have no idea why as i regularly see her posting on various other forums. I have emailed Mary to ask whether there is a problem but she has not responded.


2:23 AM, 16th July 2013, About 9 years ago

Reply to the comment left by "DC " at "13/07/2013 - 12:33":

EVEN if a LL uses a LA the best way to manage a deposit is for the LL to be given the deposit and use mydeposits to send the DPC and PI to the tenant.
Unless the LL is out of the country then mydeposits everytime and even then use md
There is NO argument about deposit monies when they are sitting in the LL bank account.
It always suprises me that LL allow LA to collect rent an deposit monies.
How hard can it be for a LL to check his bank account for rent receipts.
Obviously if you have 50 properties then you might leave to the LA.
But most LL only have 5 properties.
Why on earth would you allow a LA to get their grubby mitts on your income before you receive it!!??
There is NO need; if the LL finds rent not paid it only takes a phone call or email instructing the LA to chase the rent arrears up.
LL are very naive i allowing vast sums to go to a LA and be held by them.
I'd love to know how many LA would NOT do business with me if I went for a full management contract with the exception of ME receiving rent and deposit monies.
How hard can it be for a LA to be contacted by the LL about a missed rent payment!!
LA just has to produce an invoice which the LL pays.
Of course we all know why LA like the cash coming to them; cheap overdraft at ZERO cost with no chasing the LL to pay the monthly management charge.
Well just like any service I use; I expect to be invoiced and then I pay the bill.
I do NOT expect to have the monies taken from me BEFORE an invoice is sent and then sent what they think the balance is!!!

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