SafeDeposits Scotland has called for an overhaul to a government scheme designed to protect tenants’ cash from unscrupulous landlords amid concerns the Crown will receive £1 million in unclaimed deposits by 2018.

Less than three years after new tenancy deposit regulations came into force in Scotland, those administering the initiative are sitting on unclaimed monies totalling £400,000.

However, with the pot constantly growing and the legislation having no set plans for unclaimed cash, Scotland’s largest operator of the scheme has said it has been legally instructed it will be claimed after six years by the Crown. Predictions are that it will top £1m by 2018.

Jennifer Paice, chief executive of SafeDeposits Scotland, has now called for clarity in the legislation over uncollected deposits and said the money would be better utilised improving the private rental market, which has around 330,000 properties in Scotland with the number of households living within it increasing by 65 per cent since 2001. The call has been backed by student leaders, with those in education a major constituency of those living within the private rented sector.

Ms Paice, whose not-for-profit organisation has more than 60 per cent of the tenancy deposit market, said when it was introduced in 2012 there were no provisions in the schemes to deal with the eventuality of unclaimed deposits as no-one predicted it as an issue.

Ms Paice told the Herald: “We were not expecting this scenario. No-one was. But we have since taken advice from our own solicitors over what happens as there are no provisions in the scheme. We have been told that like many other unclaimed assets it reverts to the Crown. As a not-for-profit we cannot keep it.

“What we are now asking the government for is a change to the law, where the unclaimed cash goes into a trust to help improve the private sector. That is everything from supporting tenants’ groups, making all involved in the sector aware of legislative changes and generally helping professionalise the private rented sector.”

The schemes were introduced in 2012 to deal with the problems relating to landlords and letting agents who unfairly withhold deposits from tenants.

Landlords are legally responsible for registering with a scheme and for lodging a tenant’s deposit there within 30 days of a tenancy starting. The programme has been hailed a major benefit to tenants in dispute with a landlord over whether all of their deposit, or a proportion of it, should be withheld due to alleged damage.

The Scottish Government said last autumn that up to August, 274,055 deposits worth £182m had been registered.

Gordon Maloney, president of NUS Scotland, said: “It is really worrying that such a significant amount of deposits are going unclaimed, a sign that tenants either do not know their rights or are not able to exercise them.

“When tenants continue to see rents increasing by scandalous amounts, and the Scottish private rented sector is in need of investment and reform, not least regulating the cost to tenants, the last place unclaimed deposits should be going is into the UK government’s bank account. Given the huge amount of deposits that are going unclaimed, and when the sector remains in need of investment, we must see a change in the way things work so that this money can remain in Scotland and more can be put into services that benefit tenants.”

Housing minister Margaret Burgess said: “The laws governing the schemes allow tenants to reclaim money owed to them at any time after the end of a tenancy. There is no statutory time limit.”