SCOTS landlords face court action over failing to protect tenants' deposits after a North Ayrshire letting agent became the first in Scotland to be prosecuted for breaching rules.

Colvin Houston Ltd was fined after becoming the first to be prosecuted under regulations that required all Scottish landlords to hand over deposits to an independent third party.

North Ayrshire Council say that the "landmark ruling" at Kilmarnock Sheriff Court - could now have a "massive impact" for people renting properties across Scotland.

After the Tenancy Deposit Schemes (Scotland) Regulations 2011 came into play, landlords and letting agents had until May, 2013, to lodge all deposits, It was hoped an initiative to bring in three government approved schemes to protect deposits four years ago - free for landlords and letting agents - would prevent agents holding on to money on false grounds.

But the schemes are estimated to be catching around 40 per cent of all deposits.

The new prosecution, triggered by North Ayrshire Council’s Trading Standards team, is said to be the first to to be successful since the rules were introduced five years ago.

The council said that housing legislation primarily places the responsibility for securing deposits on landlords. But Consumer Protection legislation was used in this instance, a first, to hold a Letting Agent responsible for the deposits they took on behalf of their landlords.

Colvin Houston Ltd pled guilty to the charge relating to two specific deposits, amounting to £925, which had not been paid into a required Tenancy Deposit Scheme. The company were fined £750 which was reduced to £500 for an early plea.

The council said that now there is a "legal precedent, establishing criminal liability under Trading Standards legislation" work can be continued throughout Scotland over deposits not held in a regulated Tenancy Deposit Scheme.

Scott McKenzie, the council's protective services senior manager said they are now sharing their experience with other councils across Scotland.

Willie Gibson, leader of North Ayrshire Council, said it was a "real victory for tenants across Scotland".

“The most disadvantaged can often be trapped in below tolerable standard housing because they do not know the whereabouts of their deposit," he said.

“Legislation has been passed to stop landlords not securing deposits. The use of consumer protection legislation now requires letting agents to ensure they place their clients deposits in a secure scheme. Our trading standards team deserve huge credit for getting this to court."

Trading Standards used the Consumer Protection from Unfair Trading Regulations 2008 legislation to press charges against Colvin Houston Ltd.

The council said that as they had not secured the deposits, the letting agent had committed the offence for "failing to meet the standard of skill and care that would reasonably be expected" of a trader in its field of activity, and hence their practice was deemed "unfair as it failed to meet the standard of professional diligence".

After October 2, 2013, landlords were required by law to hand over all new deposits within 30 working days of a tenancy starting.

With more than 270,000 households estimated to have been renting from private landlords when the legislation came in, about £75 million was expected to be transferred to the three approved bodies.

Previously tenants had to take legal action to try to recover deposit money but the regulations give them access to an independent dispute resolution service if the return of a deposit cannot be agreed.

One of the government approved schemes, SafeDeposits Scotland, a not-for-profit partnership between landlords, agents and tenants, including student body, which manages the majority of private rental deposits in Scotland said it hoped that the case will go "a long way to ensuring the minority of letting agents and landlords who don’t currently comply with government regulations quickly address this."

Jen Paice, chief executive of SafeDeposits Scotland, said the case raises "an important point which all landlords need to be cognisant of".

“The statutory duty to protect a deposit is on the landlord even when a letting agent is used so it’s essential to seek confirmation that this is happening and alert the authorities where it is not," she said.

Graeme Brown, director of Shelter Scotland, said:“This is great news and we congratulate North Ayrshire Council Trading Standards team for pushing forward with this case and ensuring the letting agent was sanctioned.

“Shelter Scotland was instrumental in the Tenancy Deposit Scheme becoming a reality in Scotland. The rules are clear for letting agents in that they have to protect their tenants’ deposits – not use them as a cash-flow for their businesses.

“We hope that all other local authorities in Scotland take encouragement from this ruling and take appropriate legal actions against letting agents and landlords who flout the law by failing to protect their tenants’ deposits.”

Judith Houston, a director with Colvin Houston Ltd said: "As soon as the situation became apparent, Colvin Houston Ltd took steps to rectify the error made and notified its clients of the situation. Colvin Houston Ltd sincerely regret the inconvenience caused to their clients."