Tenancy Deposit Alternative scheme - legal or not?

The subject of tenant deposits has always been one of some contention for both landlords and tenants, but ultimately an accepted part of the private rental process.

To a large degree both sides pretty much understand the requirement of a deposit, how it works and the likely consequences and the remedies for trying to resolve any disputes.

However, the market broadly determines what prevailing levels of deposits might be, and there is no doubt that depending on the circumstances, such as demand in a particular area, or the type or quality of an individual property, the of a deposit can be prohibitive to a potential tenant. This does of course affect both the renter and landlord.

How the Tenancy Deposit Alternative scheme works

A possible solution which has become increasingly popular is the Tenancy Deposit Alternative Scheme (TDAs). In a nutshell, TDAs are designed to replace the traditional deposit with a non-refundable payment to the relevant scheme. In return, the TDA protects the landlord from a variety of undesirable circumstances, such as non-payment of rent or property damage.

For landlords, with lower costs for a tenant, this also means it may be easier to find prospective tenants who can more readily can afford the TDA cost, rather than a higher traditional deposit. In addition, landlords do not require to recover the sums once liability has been established – the TDAs buys the debt and then deals with it.

There are also advantages for a tenant. Typically the tenant has the availability of a significantly reduced deposit, albeit the fee they pay for the TDA is generally non-refundable whilst a deposit is.

Legality

However, despite all of the above, a question has arisen as to the legality of these schemes. A range of case law in England has gone some way to informing the law in Scotland, but a case in Scotland, Cross v Aberdeen Property Leasing has also provided some guidance. In summary, a group of students claimed their £125 administrative fee was an illegal premium in terms of the Rent Act 1984 and sought recovery of this. Ultimately the Sherriff granted decree in favour of the students.

The law itself can be complex, but it would seem that the current operation of TDAs is contrary to the Rent (Scotland) Act 1984. One reason for this being there is a premium being paid to the TDA operator that is not rent or a refundable deposit.

Importance of professional advice

Adrian Sangster Leasing Director, Aberdein Considine said: “The recent increase in these schemes, and indeed the legal cases we have seen would suggest that a huge level of care has to be taken by both landlords and tenants before considering entering into this type of agreement.

"It can be tempting for both parties to view the schemes as a low risk, easier option to traditional deposits but it is vital that whether you are renting or a private landlord you take professional advice at the outset. It could well save you a great deal financially and avoid unnecessary legal proceedings.”

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