Rental deposit scheme (FOI)
Rental deposit scheme (FOI)Produced by the Freedom of Information office
Authored by States of Jersey and published on 31 March 2016.
How was the selection process made for the rental deposit scheme and why was MyDeposits chosen?
What happens in regards to the interest earned on these deposits and in addition the taxation of this interest?
Why has this been handed to a UK company and not to the States of Jersey where the interest could be used for the public benefit or returned by percentage to the tenants in the scheme?
If MyDeposits are keeping the interest then why is an additional fee required?
Why does the Jersey MyDeposit Scheme differ from their UK offering where the landlord keeps the deposit in their own bank account and only pays a protection fee to the scheme?
Procurement for a tenancy deposit scheme was carried out between September 2014 and May 2015. The procurement process involved tendering for an organisation to set up and operate a tenancy deposit scheme on behalf of the States of Jersey in accordance with the requirements of the Residential Tenancy (Deposit Scheme) (Jersey) Regulations 2014. The procurement process followed States Corporate Procurement guidelines in respect of tendering for services.
Several UK and local companies tendered to operate the scheme. Each bid was subject to a full evaluation process and due diligence carried out by a panel of officers from the Chief Minister’s Department, Law Officers, Treasury and Resources, and States Corporate Procurement.
The evaluation panel agreed that mydeposits had submitted the most advantageous proposal in respect of financial, administrative and technical arrangements. It was therefore recommended to the Minister for Housing that mydeposits should be appointed as the scheme provider.
The use of interest earned is set out in the 2014 Regulations. The Regulations give the Housing Minister the power to direct the use of interest earned on the scheme account.
Interest earned on deposits is currently used to meet the costs of operating the tenancy deposit scheme.
The Strategic Housing Unit does not hold information on the taxation of interest. However, mydeposits is required to be compliant with all relevant legislative and regulatory requirements.
The States of Jersey determined that the tenancy deposit scheme should be run by a third party at no cost to government. A procurement process was therefore carried out to appoint a scheme administrator who would set up and administer a scheme on behalf of the States of Jersey. The procurement process was open to Jersey and UK companies.
The evaluation process demonstrated that mydeposits had the most advantageous bid in terms of financial, administrative and technical arrangements for a tenancy deposit scheme, including the establishment of an alternative dispute resolution service and ongoing promotional activities.
As noted above, the use of interest earned is set out in the 2014 regulations. The Housing Minister has the power to direct the use of interest earned on the scheme account. At this time, when the interest rate is low and the level of deposits relatively small, the minister has permitted mydeposits to use interest earned on deposits to meet the costs of operating the scheme.
The use of interest earned on the scheme account is kept under review and, subject to financial performance of the scheme and any rise in interest rates, the Housing Minister may decide in the future to return a proportion of interest to tenants.
Interest earned on the scheme account should provide the main source of funding for the tenancy deposit scheme. However, the tenancy deposit scheme is unable to generate sufficient funds from interest on the scheme account at this time when the Bank of England base rate is at 0.5%, especially in the early years of the scheme when the deposit pool is relatively small.
It has therefore been agreed that mydeposits can charge a fee. The charging of a fee is provided for under the Residential Tenancy (Deposit Scheme) (Jersey) Regulations 2014 and the fee level is directed by the Housing Minister. The fee will be reviewed as the size of deposit pool held by mydeposits grows.
The legal frameworks for tenancy deposit schemes in England and Wales, Scotland and Northern Ireland enable scheme providers such as mydeposits to operate either insurance or custodial based schemes.
For the avoidance of doubt, an insurance scheme requires a landlord to pay a security premium against the deposit he / she holds, and to hand over the deposit to the scheme provider only if a dispute arises.
In contrast, a custodial scheme requires a landlord to hand over the deposit to the scheme provider at the beginning of a tenancy where it will be held for the length of the tenancy until it is released at the end of the tenancy subject to agreement between the landlord and the tenant.
The Residential Tenancy (Deposit Scheme) (Jersey) Regulations 2014 provide the legal framework for a custodial scheme only in Jersey. This decision was made on account of the small size of the local market and the need for the tenancy deposit scheme to operate in a financially viable manner.
Preference was given to the custodial scheme because it gives tenants greater confidence that their deposit money is being held securely for the length of their tenancy.
A comparison of the insurance and custodial schemes was set out in the report accompanying the draft Deposit Scheme Regulations.
Download draft Residential Tenancy (Deposit Scheme) (Jersey) Regulations 201- (size 235kb)