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A Landlord’s Guide to Deposits & Tenancy Protection

 

A tenancy deposit (also known as a security deposit) is like insurance for a landlord: damages, loss of rent or cleaning bills.

By law, Landlords must place their tenant’s deposit in a tenancy deposit protection (TDP) scheme within 30 days of receiving it if the property is rented out on an assured shorthold tenancy.

At the end of the tenancy, the deposit will be returned to the tenant if they have met the terms of their tenancy agreement. If they fail to meet the terms of their tenancy, a landlord can deduct money for reparation.

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What is a tenant deposit?

A tenancy deposit offers landlords financial security should their buy to let investment was to be damaged, items are missing or broken, rent arrears or the tenant has left the property in a habitable state.

If at the end of the tenancy a tenant has broken the terms of the tenancy agreement, a landlord can deduct a part or all of a deposit to cover the costs.

How much deposit should I be charging?

The Tenant Fees Act 2019 states that the maximum security deposit is five weeks’ rent for tenancies of less than £50,000 per year. For any tenancies that are over £50,000, the threshold is six weeks.

Where does the deposit go?

If you take a deposit from your tenants, The Housing Act 2004 requires it to be protected in one of the Government authorised Tenancy Deposit Protection (TDP) schemes. 

As the name says, Tenancy protection services protect a deposit for the duration of a tenancy. They will also work to resolve any disputes arising at the end of the tenancy over the deposit. 

Landlords or Letting Agents, depending on who is managing the property, must inform their tenants which scheme they have used within 30 days of receiving the deposit.

You can use one of the following if your property is in England or Wales: Deposit Protection Services, MyDeposits, Tenancy Deposit Scheme. In Scotland and Northern Ireland there are separate TDP schemes. 

Some protection schemes offer the option to keep the deposit in your bank, usually at a fee and it will allow you to keep the accrued interest. At the end of the tenancy, you will be in charge of repaying the tenant with the assurance that if there is a dispute over any deductions, the service would be on hand to provide a resolution service.  

Once the deposit is protected, you will receive a certificate. Information about the deposit protection scheme should include in the tenancy agreement. As soon as the money has been deposited, landlords must email the certificate to the tenants.

What happens at the end of a tenancy?

The deposit must be returned to your tenants within 10 days of you both agreeing on how much they’ll be getting back. In the event of a dispute, the deposit is protected in the scheme until the issue is settled.

The tenant will have a duty of care when it comes to your property and will need to return the property in the same condition at the end of tenancy as they found it at the start. The initial inventory report should be checked (with the allowance for fair wear and tear).

When does a landlord claim against a deposit?

The most common reasons for a landlord who claims against their tenants’ deposits are:

  • Cleaning (63%)
  • Damage to property and contents (53%)
  • Redecoration (37%)
  • Rent Arrears (23%)

End of tenancy cleaning is the most contested security issue followed by damage to carpets and paint coming in at a close second.

What do I do if I need to claim against a tenant’s deposit?

The letting sector’s rule is that a tenant cannot be held responsible for damage at end of a tenancy caused by ‘reasonable use of the premises and the ordinary operation of natural forces.’ 

However, this is quite a broad outline that leaves a great deal open to subjectivity and it’s not unusual for disputes to arise.

In the event that a landlord and agent need to retain a deposit, they will need to explain to the tenant in writing why they are retaining a deposit. The burden of proof lies with the landlord or the letting agent. You will also need to provide evidence that the cost is reasonable therefore, keep any receipts as proof.  

 

How to avoid a disputes?

  • How long has the tenant been living there for? – If you have a tenant who has been living in the property for 5 years, scuffs on the wall will be expected. It will quite unreasonable for a landlord or letting agent to charge for a whole room to be repainted for a free small marks after a long tenancy.
  • Collect quotes from contractors that you trust before issuing a deduction to a tenant and pass this onto the tenant. Tenants will be less likely to consent a fee if they can see and understand what exactly they are being charged for.
  • Take photos of the property before the tenant moves in. This will allow you to have something to check back on when they hand their keys back.
  • Include an inventory with a check in and check out report
  • Make regular inspections of the property (ensure you agree a time with the tenants at least 24 hours before).