RLA : RPI : An alternative to custodial penalties

News from the Residential Property Investor, the bi-monthly magazine for RLA members

other artilces from the December 1999 / January 2000 issue

An alternative to custodial penalties - December 1999 / January 2000

RLA members are being advised to join the Independent Housing Ombudsman Scheme as a response to Government concern about the handling of deposits by landlords.

It was a year ago that the then Minister for Housing Hilary Armstrong told the private rented sector it must establish its own scheme for fair treatment of deposits or face a compulsory scheme. Her comments came after findings by both the Department of the Environment, Transport and the Regions and the National Association of Citizens Advice Bureaux (CAB) of frequent disputes about the return of deposits and widespread tenant dissatisfaction.

The CAB report, Unsafe deposit, had concluded that 'the scale of the problem is substantial: 48 per cent of the respondents who took part in the survey said they had had a deposit unreasonably withheld in the last five years'.

But it conceded that 'it is of course likely that, in some of the cases where the tenant felt the deposit had been unreasonably withheld, an independent arbiter might have found differently'.

Since Armstrong made her statement the DETR has been holding meetings with industry representatives. The RLA has had a voice via involvement of member Mark Butterworth who has taken part in meetings as a British Property Federation representative.

As a result of these meetings two possible voluntary schemes are likely to be piloted. One, the 'custodial' scheme will work on the basis that deposits are held by a third party. The other 'non-custodial' scheme will leave landlords to hold deposits but require them to take out an insurance bond to safeguard tenants' deposits in the event of default or bankruptcy. Cost of this is likely to be £4 per tenancy for landlords who are members of recognised self-regulatory bodies, £10 per tenancy for those who are not.

In both instances the schemes will be administered by the Independent Housing Ombudsman (IHO). In the case of disputes it will rule on the amount of deposit to be repaid with the sum, in the case of the non-custodial scheme coming from the insurance company which will then recoup the money from the landlord.

'It is clear that if a satisfactory non-custodial scheme cannot be organised by the private rented sector, then the custodial scheme will be imposed', Mark Butterworth told RPI.

That would not be in the interests of landlords since the DETR favoured scheme 'is fraught with expense and nightmare administration', he said.

The trouble is that both of the proposed voluntary schemes have obvious drawbacks with concerns expressed by experienced industry players about the likely take-up.

Like Butterworth, the National Federation of Residential Landlords is against the custodial scheme because of the administrative burden it would impose. It concluded that many small landlords would be put off participating.

Meanwhile the BPF has said that although it wished to see a non-custodial scheme, piloted, it doubts whether it could be sold to members who have made it clear 'they did not regard the scheme proposed as viable'.

This means members will be left with 'two unacceptable models'. Therefore 'existing frameworks to provide non-custodial safeguards to tenants, such as membership of the IHO scheme' should be tested in parallel to the pilot schemes.

'We propose going the route of individual or collective membership of the Independent Housing Ombudsman scheme', says Butterworth. 'This is cost effective, at 78p per unit, and much easier to administer'.

The IHO scheme for investigating complaints and resolving disputes was established under the Housing Act 1996 as a replacement to the former Housing Association Tenant's Ombudsman Service. All social landlords other than local authorities must join the scheme which is also open on a voluntary basis to private landlords.

Current estimates are that over 1.5m housing units (including 25,000 privately rented homes) are covered by the scheme, which is paid for by subscription from landlords calculated on the basis of the number of units managed.

The emphasis of the service, according to Ombudsman Roger Jeffries, is on resolution of complaints and disputes. 'In addition to investigating complaints myself, I offer a mediation scheme and an arbitration scheme, the costs of which are paid for by the scheme. They have proved very attractive to landlords and tenants alike'.

The two pilot schemes will begin in the early part of 2000 and last for two years. They will cover five locations, one of which is likely to be Liverpool and West Lancashire.

'This is an exciting opportunity to tackle a major cause of complaint and to try and introduce the good standards adopted by many private landlords to everyone in the sector', said the Ombudsman. Meanwhile landlords have an opportunity to show that there are alternatives to the DETR's model schemes. The Independent Housing Ombudsman can be reached at: Norman House, 105-109 Strand, London WC2R 0AA telephone 0181 836 3630.

other artilces from the December 1999 / January 2000 issue