Stephen Faughnan, Chairman of the Irish Property Owners Association (IPOA) argues residential tenant deposit protector schemes based on those in the United Kingdom are not suitable for the Republic.
The current Programme for Government (PfG) in the Republic of Ireland includes a commitment to introduce a Deposit Protection Scheme for residential tenancy deposits modeled on schemes in the United Kingdom.
Whilst the unfair retention of deposits by landlords anywhere is unacceptable, at the Irish Property Owners Association (IPOA) we believe governments should exercise caution before regulating rental practices.
Moreover, we are of the opinion that the legislation currently being proposed for the Republic is as unsuited to local market requirements as it is unnecessary.
Deposits: a necessary requirement
Tenants are required to pay deposits in order to compensate landlords for damage that might arise to a property and its fixtures or fittings; and less frequently to partially or fully cover rent arrears that may arise during a tenancy. Rarely are they sufficient to compensate landlords fully when tenancies go seriously wrong, however.
Deposits in Ireland
The retention of deposits by landlord cannot be considered a significant problem in the Republic; certainly when compared to the United Kingdom where 70 per cent of deposits are returned to tenants in full and 13 per cent never returned at all; despite the existence of government-backed tenancy deposit protection (TDP) schemes.
According to the most recent Private Residential Tenancies Board figures (the PRTB is a regulatory body that was established to process the mandatory registration of all tenancies in the Republic), only 836 (0.36 per cent) of 235,000 registered tenancies in 2012 (97,181 of which were new or re-registrations), resulted in allegations of unlawful retention of deposits.
Perhaps more impressively, only 123 of these 836 complaints (0.05 per cent of all tenancies registered with the PRTB in 2012) required enforcement action to recover deposits from landlords on the completion of a statutory dispute resolution process.
The cost of administering deposit protection schemes
Any debate on the merits or demerits of deposit custodial schemes needs to take account of the resources that are required to administer them.
Property, landlord, tenant and deposit details must all be registered and recorded in systems that must be able to monitor the safekeeping of deposits and handle requests for their return; in addition to providing a mechanism for dealing with disputes.
In turn, significant investment is needed in dedicated ICT infrastructure, call centre facilities and administrative personnel; as the experience of the United Kingdom where the Treasury finances schemes using public funds demonstrates.
Nothing but inconvenience
Deposit protection schemes are an inconvenience since deposits can only be returned once a series of actions has taken place after a tenant leaves a property. And in turn this prevents tenants from using an existing deposit with their next landlord.
Additionally, tenants are invariably required to apply for the return of deposits through a formal process which can take time - face further delay if they fail to reach agreement about the amount that is to be returned with landlords.
And additional delays can be expected if either party to a tenancy agreement fails to respond to correspondence from organisations responsible for administering deposit protection schemes.
A home-produced solution for Ireland?
As we have seen, Ireland already has a mechanism for dealing with complaints from tenants about retained deposits in the PRTB's dispute resolution service. This contrasts sharply with the position in the United Kingdom prior to the introduction of its TDP schemes.
Indecon, an independent consultancy firm retained by the PRTB to assess the feasibility of the government's proposed deposit protection scheme, has proposed another alternative to a Deposit Protection Scheme in the form of a "fund to ensure tenants are not left at a loss if landlords fail to comply with Enforcement Orders”.
And IPOA submissions to the Minister for Housing, whilst focusing on strengthening the existing dispute resolution mechanism, incorporate a provision à la mode de Indecon's for raising the PRTB's standard tenancy registration fee by €5 on condition that revenue generated will be legally ring-fenced, held in an interest-bearing account (which might reasonably cover PRTB administration costs for administering the scheme), and be used to refund a tenant directly in the event of a landlord failing to comply with a dispute resolution service finding that a deposit has been retained without justifiable cause.
A landlord–funded initiative might easily be administered through existing PRTB structures and supported by a minor reform of Small Claims Court procedures to allow tenants to pursue non-compliant landlords - and the PRTB to initiate legal action against tenants adjudged by the dispute resolution service to have lodged unwarranted complaints about landlords!