Buy-to-let landlords who employ letting agents are at risk of losing deposits worth thousands of pounds should the agent go out of business. Hundreds of letting agents have ceased trading in recent months, leaving buy-to-let landlords liable for the deposit owed to tenants. Under the two insurance based schemes (mydeposits.co.uk and TDS) only the tenant is covered.

At the end of a tenancy, the tenants approach the letting agent holding their deposit. If the agent has ceased trading, tenants claim on the insurance — and the insurer will try to recover the money from the landlord as the employer of the failed agent.

Miles Cary, an accountant, owns three properties in Shoreham-on-Sea, West Sussex. He faces losing several months’ rent and the deposits on the two that used to be managed by Scarlet Property Services in Shoreham, which ceased trading recently. The company was not a member of any professional organisation.

“The letting agent protected the deposits with The Dispute Service (TDS), so the tenants can make a claim against it if they don’t get the deposit back at the end of the tenancy, but I’m not allowed to make a claim if the letting agent goes bust,” Cary says. “I am owed more than £3,000, including deposits of £1,400 that I will have to refund to the tenants.” Cary says that he will refund the deposits himself when the tenancies end, to avoid the need for tenants to file a claim with the TDS. “I have taken responsibility for it personally because I don’t want to get a reputation as a difficult landlord,” he says.

Mydeposits.co.uk, the deposit protection insurance service, insures 335,000 deposits, and has received 279 notifications of a letting agent going into liquidation and being unable to return the deposit. Only 93 went to adjudication, and the landlord had to pay out in all those cases. It is probable that the landlord paid out voluntarily in the remainder. “The TDS is there to protect tenants,” Eddie Hooker, of Mydeposits.co.uk, says. “Under the law, there is a contract between the landlord and the agent so we can go after the landlord for the money owed by the agent.”

The TDS now only now accept only letting agents that are members of professional bodies, such as the Association of Residential Letting Agents (ARLA), which are bonded so that landlords will be protected if their letting agent ceases trading. ARLA has introduced a licensing system for letting agents; landlords can check if their agent is registered at www.arla.co.uk..

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