The Tenancy Deposit Scheme was introduced in England and Wales in April 2007.  All residential landlords and letting agencies providing an Assured Shorthold Tenancy where the rental income was up to £25,000 per annum following the introduction of the scheme, are obliged to hold their tenant’s deposit in an authorised tenancy Deposit Scheme.

Failure to secure a deposit in a scheme can result in a claim being made by a tenant.  This claim can amount to the return of the deposit, the payment of a penalty of 3 times the amount of the deposit and also any court costs. A Failure to provide information about the deposit, in the statutory prescribed form, can also result in the same penalty.

Letting has traditionally been seen as a low risk profession for Professional Indemnity Insurers, however, in recent years we have seen a marked increase in claims being made against letting agents and whilst many are as a result of “no win no fee” compensation cases they all have to be legally defended which can be very costly if you don’t have insurance.  I read recently that insurers have seen a substantial increase in claims being made against Lettings Agents directly by their tenants but also by Landlords.  The increase in claims is expected to continue as since the 1 October last year, the rental income threshold for the deposit scheme was increased from £25,000 to £100,000 per annum.  This increase means a significantly larger number of tenancies are now required to comply with the provisions of the Housing Act 2004 and the authorised Tenancy Deposit Scheme.

Failure to secure a deposit with a recognised scheme for a tenancy with a rental value of up to £100,000 per annum can result in a significant penalty (tens of thousands of pounds) being awarded against the Landlord of the Agent.  The tenant is also likely to be awarded legal costs.

Whilst Professional Indemnity Insurance does not cover these type of penalties and therefore any direct claim by a tenant against the Letting agent (The insured) will be excluded from cover, claims made from Landlords for damages (where the landlord has had to pay a penalty to a tenant) arising from a breach of duty by the agent should be covered under a PI policy, subject to the policy terms and conditions.

For further details check the DPS website.