As the government considers reforms to England's tenancy deposit system, lettings financial services business The Letting Partnership is warning that one question remains almost entirely absent from the debate: what happens to deposits that are never reclaimed?
Current discussions have focused largely on how deposits should be protected going forward, principally the relative merits of custodial versus insured schemes. Far less attention, the company argues, has been paid to deposits that remain unclaimed once a tenancy has ended. England and Wales currently has no formal dormancy framework governing these funds.
New analysis by The Letting Partnership estimates that around £750m could currently sit within the tenancy deposit system as dormant or otherwise unclaimed balances. The figure is modelled using publicly available housing and tenancy deposit data, given that no official or consolidated record exists showing the true value of deposits that remain unreturned after tenancies end.
The business stresses that the estimate does not suggest tenancy deposit schemes or letting agents have acted improperly. Rather, it points to what it describes as a significant policy gap: no clear legislative framework defining when a tenancy deposit becomes dormant, and no mechanism determining how genuinely unclaimed funds should ultimately be treated.
Scotland provides a working comparison. Unlike England and Wales, Scotland has legislated for dormant tenancy deposits, establishing a process that allows eligible unclaimed funds to be directed towards housing-related causes once appropriate safeguards and timeframes have been met.
The Letting Partnership argues that ongoing reform presents a direct opportunity to consider whether a similar framework should be introduced south of the border. A dormancy framework, it suggests, would bring greater transparency to the treatment of long-term unclaimed balances while providing certainty for tenants, agents, landlords, and deposit protection providers.
Without any official figure, the company warns, policymakers and industry are currently debating the future structure of deposit protection without fully understanding the scale of dormant funds already sitting within the system.
"The tenancy deposit reform debate has understandably focused on how deposits should be protected in the future, but there is a wider governance question that also deserves attention," said Chris Mason, chief operating officer at The Letting Partnership.
"At present, there is no legislative framework in England and Wales governing dormant tenancy deposits, nor is there any official reporting mechanism that reconciles deposits held within the protection schemes against those that remain active within letting agents' portfolios. That means there is no clear picture of how many deposits may simply be sitting within the system after tenancies have ended.
"Our modelling suggests the figure could be significant, potentially running into the hundreds of millions of pounds, but without that reconciliation mechanism in place, nobody can say with confidence what the true scale actually is.
"Our analysis is an attempt to start that conversation. Before deciding how the system should operate in the future, it's important to understand the one we already have and whether there is an opportunity to bring greater transparency to balances that may otherwise go unnoticed."
