Tuesday, January 06, 2009

TDS ditches unregulated agents

TDS, the tenancy deposit scheme aimed at letting agents, has now announced that it will only accept agents and landlords who are members of recognised professional bodies as members from now on. With effect from 6 April 2009 they will be withdrawing membership from current non regulated members.

This action, it appears, has been taken at the insistence of TDS insurers. Another manifestation of the credit crunch perhaps?

The official press release states that they will be writing, not only to all their unregulated agents but also to the tenants of unregulated agents.

Indeed I have learned of one case where TDS have already written to an agent and his tenants (on 2 Jan, before the press release). The agent (who is very reputable) is not surprisingly very upset about the effect this is having on his tenants, particularly as he was given no warning that TDS were going to do this, and therefore had no opportunity to contact his tenants first to explain what action he will be taking regarding their deposits. I understand that a formal complaint will be going in very shortly to TDS about this. Surely it is not beyond the wit of TDS to leave a week or so between writing to the agents/landlords and their tenants?

The press release suggests that agents should be a member of either the Association of Residential Letting Agents (ARLA), The National Approved Lettings Scheme (NALS), the National Association of Estate Agents (NAEA), or the Royal Institution of Chartered Surveyors (RICS). They do not mention other relevant professional organisations such as the Law Society and the Guild of Letting and Management. Presumably members of these organisations are not going to be ‘evicted’ from the scheme also?

My correspondent (the solicitor of the aggrieved agent) points out that TDS action appears to be excessive, as they should have weeded out any ‘bad apple’ agents at the time of application. He also queries whether this action is within the government guidelines for TDS schemes to be available to all.

It certainly seems to be an unfortunate glitch, and will undoubtedly cause a lot of upset among blameless (albeit unregulated) agents, who it should be pointed out, are already paying a considerably higher membership fee to TDS, than for example ARLA agents are.

Two other questions to ask are:

1. Have TDS considered finding alternate insurers (admittedly probably difficult in the current economic climate), and
2. Are there any grounds for the unregulated agents, about to be evicted from the scheme, to sue?

I would be interested to hear from any affected parties as to the effect this will have on them and what action, if any, they are taking against TDS.

Stumble Upon Toolbar


lawrence@tds said...

Dear Tessa

I’ve seen your article on Landlord Law, and hope that you will allow me a reply.

Let me emphasise that we were required to take this action by our insurers. I appreciate that there has been cost and disruption to the firms concerned – as there has indeed been to us. It would not have been our choice to force valuable members to leave TDS. As you say, many of them are blameless. Only a few of our members have gone into liquidation, but unfortunately by far the most significant was of an unregulated agent. Our insurers consider that the risks posed to them by agents who do not belong to bodies which require them to have Client Money Protection Bonding (CMPB), are too high.

You ask if we considered finding alternate insurers. We know from experience in constructing our tender for this service how specialised an area of insurance this is, and how little interest and appetite there was for it then. You are quite right to acknowledge that it would be difficult in the current economic climate, and there is no reason to consider that other insurers would be any less rigorous.

We despatched letters to agents before those to their tenants, using the Royal Mail’s 3-7 day delivery service for the latter. I am not perhaps surprised that letters to some agents were delivered late, but I am surprised that some to tenants were received early. In any event, we didn’t want there to be too big a gap in case tenants got wind of these changes from elsewhere together with completely the wrong story. We also wrote to the bodies whose members were affected.

We have given the members affected three months notice. This gives them the opportunity for an orderly transfer to another scheme; or to join one of the professional bodies which does carry CMPB – which, as you rightly point out, does include the Law Society – at a substantially lower rate of subscription than they pay as unregulated agents.

Kind regards

Lawrence Greenberg
Independent Case Examiner

Tessa said...

Thank you very much for your comments Lawrence, and I am sorry if my post sounded too negative. I do appreciate that the current economic conditions make it difficult for all of us.

However this has come as a huge shock to many people. It is unfortunate that the postal service let you down, so the letters to tenants have in some cases arrived before the letters to agents.

Speaking as someone regulated by the Solicitors Regulation Authority, I do understand the value of regulation of professionals, to their clients and customers!

Anonymous said...

The issue is not quite as simple as Mr Greenberg makes out and the way it has been handled is unfair and contrary to the TDS rules

As I understand it, there has been no consultation with the membership prior to this decision being made and, more crucially, being publisized to their tenants. The membership rules require an Agent to give 6 months notice if it wished to leave the scheme. Surely a blameless unregulated member, who has an otherwise unblemished record and who had been accepted for membership, is entitled to a similar period of notice. The unregulated members have also not been given any period in which to make representations before this decision was published to their tenants.

If the real issue is CPMB then the appropriate way for this to have been dealt with would have been to make this clear to the unregulated members and give them an opportunity to comment and/or put in place their own CMPB arrangements.

PLC Property said...

A couple of other issues occurred to me about this.

It seems quite likely that the other insurance TDS will have to impose a similar requirement on its members. If so, unregulated agents will have no choice but to use the sole custodial scheme, which is arguably not what was envisaged when the regime started.

If someone has to change to a different TDS, even with three months' notice, will this be possible in every case? For example, if certain wording has to be included in the tenancy agreement in order to join that scheme, it won't be possible to meet this requirement with an existing tenancy.

As an aside, it seems that the custodial scheme is at least partly funded from interest earned on the deposits. If interest rates remain very low for long, the government might have to provide extra money, which probably won't be too popular when finances are tight.