How landlords rip off tenants: deposit scam that means one lost pan can cost a fortune

After years of leaky roofs, dodgy heating and other Rising Damp horror stories, students seemed to have stumbled into every available pitfall when moving into rented homes.

But yesterday the costly scandal of disappearing deposits, which sees hundreds of millions of deposit money disappearing each yearinto landlords' pockets - and reappearing (if at all) after months of delays and obfuscation - was laid bare.

A fifth of private tenants complain that all or part of their deposit has been unreasonably withheld, according to a report by the housing charity Shelter and Citizens Advice Bureaux.

The organisations said £800m of tenants' money was swilling around the system without stringent controls on how it was controlled. They have compiled a catalogue of abuse by landlords who have taken advantage of the relative powerlessness of tenants and refused to return deposits for spurious reasons.

Tenants are often unwilling to pursue cases through the courts because of the cost, the time it takes and the need for a landlord's reference to secure sought-after new properties.

Tenants, often among the less well paid and unable to get a foot on the property ladder, can be forced into crippling debt or in extreme cases forced to become homeless.

Students are among the worst hit, with 35,000 facing a summer cash crisis because of the difficulties of getting their deposits back from landlords, according to the study.

Verity Coyle of the National Union of Students said: "The arbitrary holding back of students' deposits is unfair, done with very little accountability and adds to the financial pressures students are under."

Among the cases charted in the study is a tenant who was charged £850 for "cleaning carpets and curtains and a missing saucepan". A Methodist minister who relocated with his wife and three young children was landed with a £1,346 bill that included £1,000 for cleaning and redecoration. The bill was eventually withdrawn but there was no evidence that cleaning or redecoration was needed or had happened.

Two students, aware of the problems of dodgy landlords took photographs when they moved in and arranged for the flat to be professionally cleaned before they left. Five months were needed to get their £700 deposit returned. Other stories have included a £55 bill for a broken plastic towel rail and a £250 deposit withheld because of a hole in the wall made by a drawing pin.

"Too many landlords treat rent deposits as their money, instead of money handed over to them in trust," David Harker, the chief executive of Citizens Advice, said. "Many do not even bother to give tenants a proper reason for failing to pay it back."

Clare Parkinson, 25, an office worker, lost £150 of her deposit on a room in Hackney, east London, despite refusing to pay rent towards the end of her time in the shared house after a series of disputes. "The landlord was a big East Ender and I was quite scared," she said. "I don't think he ever intended to pay me my deposit back and just made excuses."

The issue is becoming serious for tenants with six weeks' rent in advance becoming a routine requirement. Landlords can demand more than £1,000 for a small flat in London before handing over the keys. "Most of us can ill afford to lose the hundreds of pounds we pay as a deposit to rent a home," said Ben Jackson, a Shelter spokesman. "Yet frequently tenants simply accept this loss as one of the hazards of renting. Each year tens of thousands of people lose out to this scam and are often forced into crippling debt to pay the next deposit, and a few even face the extreme outcome of homelessness."

The two organisations are calling for a national deposit scheme to be included in the forthcoming Housing Bill - a move that is being resisted by the Government, despite nearly 150 MPs and a select committee backing the plan.

New Zealand, Canada and Australia all have schemes where deposits are held in trust. A scheme has been running in New South Wales since 1977 where deposits are held in a bank. Part of the interest earned goes to tenants and the rest pays for administration. Disputes are normally settled between the two parties, and an independent adjudicator can be called.

A coalition of housing and consumer groups has called for a similar scheme in Britain. They include the Association of Residential Letting Agents that represents 600 firms. "We believe in anything that improves standards," a spokesman said.

However, the Office of the Deputy Prime Minister said the Housing Bill was "too big" to include a tenants' deposit scheme. "We do accept that a significant minority of tenants are affected by the unprofessional conduct of some landlords in the treatment of tenancy deposits," a spokeswoman said. "We accept there is a case for legislation that will help safeguard against such conduct. We do not see the Housing Bill as being the best vehicle for such a measure." She said the issue would be better addressed better as a "contractual matter" between landlord and tenant.

Figures from the study showed that Britain's 2.2 million tenants pay an average deposit of £510. Other studies have shown that between one fifth and one half of tenants struggle to get back their money once they leave.

Some of the keenest difficulties are experienced in Brighton, which has the largest private rented sector in the country. The area used to be the stronghold of Nicholas van Hoogstraten, the country's most notorious landlord, who referred to his tenants as "scumbags".

Adrian Davies, the director of Brighton and Hove Citizens Advice Bureau, said: "There are two markets here: the respectable landlords, respectable agencies and clients on reasonable incomes," he said. "Then there are the rest."

Tenants were loath to get into battles with landlords over unreturned deposits because they needed a reference to get another property in the area, where competition was fierce.

The only redress is through the small claims court, which could take months with the possibility of losing to battle-hardened landlords and their experienced solicitors.

But Liz Hodgkinson, a landlord and author of the Complete Guide to Letting Property, said landlords had changed. "The days of van Hoogstraten and Rachman belong to the past and the average landlord is very nice and very middle class. They view letting as an alternative to a pension or some other investment and they don't want the hassle of a dispute over a few broken wine glasses.

"The business of holding deposits may be unregulated but don't forget that it is also a very competitive market. Landlords with a bad reputation will struggle increasingly because there are so many nice ones."

Additional reporting: Christine Hoffmann

HOLDING BACK FEEBLE EXCUSES FOR HANGING ON TO THE MONEY

'Some of their claims were just ridiculous'

Bits of kitchen cabinet in the lounge, no table, no vacuum cleaner, a dirty cooker and remnants of the previous occupants' groceries in the cupboards: as student accommodation goes - fairly standard.

When Katherine Welsh, 21, a student, and her five friends moved in to their new home in Southampton - for which they paid more than £1,500 a month - they and their families painted, cleaned and put up shelves to help to bring it up to a decent standard.

The letting agents' own log showed that for several weeks the students had no sofa or freezer. It also registered the three complaints by the women that the smoke alarms did not work in the terraced home.

And since the vacuum cleaner did not turn up until they were about to move out, it was with a certain sense of incredulity that they were told the landlord wanted to keep £650 of their £1,660 deposit. It included a charge for cleaning stains from the carpet.

"That's a lot of money not to get back. Some of the things they were saying the money was for were just ridiculous," she said. "I have got friends who had the same landlord who experienced similar problems. It's put me off renting."

Among the items the students were charged for were mattresses that were so sagging when they arrived that their parents brought extra duvets from home to ensure they were comfortable.

The women learnt that the landlord had charged the previous tenants, citing the same reason, and failed to replace the mattresses for the new set of students.

Ms Welsh's father, David, embarked on a nine-month correspondence to try to get the money back. After the owner threatened to take Mr Welsh, 61, a retired personnel director, to court, he finally agreed to pay all but £225. Mr Welsh said he finally got fed up pursuing the issue. "The place wasn't bad but it certainly wasn't as clean when we went in as it was when we went out," he said.

The letting agents declined to comment yesterday.

'House was run-down and dirty'

Katrin Jonas, a student, lost her deposit despite decorating a down-at-heel room she had hired in her landlady's house. "The house was in a awful condition, run down and dirty. I just took a room there because I was so desperate for a place to stay," said Ms Jonas, who took the room in October 2000.

"My course at Camberwell College was about to start when I saw an advert for a flatshare. But it was only the landlady living there who was about to move to the countryside. She did not want to sell the house but make a bit of money and still have a place to stay in case she was in London."

Ms Jonas paid £95 a week for a room in the property in Camberwell. She painted and cleaned the room herself. Because she also redecorated the kitchen and living room, she and the landlady agreed on a rent reduction to £70 after half a year. She only had a hand-written contract.

"We got on well, but after three months the landlady's boyfriend came around and asked us to move out within the next week. I argued with him and in the end we moved out two weeks later. My landlady never showed up again. We did not get the full deposit back. It was short by about £100. I got legal advice from my college and they called her a couple of times and wrote letters.

"She simply claimed she did not have the money but I suspect she wanted to get rid of us to rent the rooms out more expensively after I had painted everything.

"It was all very unpleasant and demoralising. Now I insist on proper contracts, and rent through agencies even though it is more expensive."

'They refuse even to talk to us'

Sumit Sabharwal, a banker, is locked in a legal battle with his former landlord in an attempt to recover a deposit of £3,120 he and his friends lost when they moved out of their flat in the City of London.

The landlord said that the 22-year-old and his two flatmates deserved to lose money because of damage to the property.

They had taken out a year's lease for £520 a week on a three-bedroom property in Domingo Street, and handed over a £3,120 deposit to an estate agent.

No inventory of the property was ever taken, but when the contract ended the three tenants, who were then students, were informed that the landlord would be withholding £2,000 for "essential" repairs.

Mr Sabharwal, who works at Credit Suisse First Boston in Canary Wharf, said: "This has been going on since April and we are genuinely shocked at the way we have been treated. We have been chasing them constantly and they have simply refused to negotiate or even talk to us. To anyone else looking for somewhere to live, make sure you use an estate agent that has been checked out by your student union. We didn't and now we're having to go to court."

Gregory Vincent, a welfare officer at City University, said unscrupulous landlords all too often tried to rip off tenants. He said that in Mr Sabharwal's case the landlord had redecorated all three bedrooms, resurfaced the floors and organised professional cleaning in the flat totalling £2,700. "It's illegal for landlords to inflict the costs of improving a property for re-letting on to outgoing tenants. Nevertheless, it happens a lot," he said.