Last week a good landlord friend of mine contacted me for advice, and what she told me made me shudder! 

Her tenant of 4 years gave her notice last month of her intention to move out. After completing an end of tenancy inspection everything looked great and she was happy to give back the full deposit. 

The deposit certificate had been registered by the original letting agent back in 2020. She contacted the deposit scheme TDS (Tenancy Deposit Service) to claim the money only to be told that they had never held the bond money in their account to begin with.

The agent had pocketed the money and …. yep you guessed it, the agent had gone bankrupt two years ago, taking with him £2700 of her tenants money.

After contacting the TDS they couldn’t give any further information due to privacy laws and surprise surprise, the agent is long gone with no forwarding address.

How did this happen?

So, lets take a step back and unravel the situation.  My friend used the agency to find the tenants, tenants paid the deposit directly to the agent and the agent then sent them and the owner a copy of the deposit certificate with a reference number, so far so normal hey?

However, what the agent didn’t tell anyone at the time, was that they had used the ‘Insured Deposit Scheme' whereby the agent registers the deposit online for a fee of about £25, but then holds the actual deposit money in their own or company bank account.

Who’s at fault? Whats next?

So then, who is at fault? 

Well morally, the agent is…. but legally my friend is.  She is liable for not only the full £2700 but she is now being told that because she didn’t protect her tenants deposit, her tenants could legally seek compensation of up to 3 times the deposit amount!!  

Fortunately, she has a great relationship with them, and they would not pursue her for compensation.  BUT, if it wasn’t for their good relationship, the tenant would be well within their rights to sue for compo!

So please Landlords when you get that deposit, make sure that your agent puts it into a ‘Custodial Deposit Scheme'. Whereby the scheme holds the money, and it can only be released back to the tenants with your approval and cannot be touched by the agent.  Or like me, I use DPS - Deposit Protection Scheme.  When I have a new tenant, I collect the deposit from them and I register it and then transfer the deposit money into it myself, so I know its 100% safe.

So, check your deposit certificates right now! Make sure they are held in ‘Custodial’ deposit protection schemes and then store them somewhere safe.