When moving into a rental property the person renting the property will almost always have to pay a deposit to the landlord or their agent. This deposit is there as security against any rent arrears or damage caused by the tenant. In this guide we will take a look at deposits in more detail and discuss what they cover, how they need to be handled and what happens at the end of the tenancy.
What is a deposit?
A deposit is a sum of money, capped at 5 weeks rent for properties with an annual rent of less than £50,000. The deposit basically puts a protected sum of money to one side which the landlord can claim against, in the event that the tenant in a property does not meet their contractual obligations such as not paying rent, not paying bills, damage caused to the property or furnishings, items missing, gardening or for cleaning the property.
Who pays the deposit?
The deposit is paid by the tenant at the start of the tenancy, typically the keys will not be released to the tenant until the deposit and the first month’s rent have been paid.
What Happens to the Deposit?
The tenant pays the deposit to the landlord or their agent. The landlord or the agent then have to register the deposit with one of the Government approved deposit protection schemes which are:
There are two options here and both are equally valid: Insured or Custodial. Custodial schemes are where the deposit money is physically paid to the deposit protection scheme and they hold the money in a secured account. Insured schemes are where the landlord or their agent hold the deposit money in their own secured account and pay a fee to the deposit protection scheme to insure the deposit. It is important to note that it is a legal requirement for a landlord to register a deposit with a government approved scheme. It is also perfectly legal for a landlord to place the deposit in their own bank account as long as it is registered and insured.
What information must be provided?
Once a landlord or their agent has registered the deposit they must, within 30 days, provide the tenant with the following legally required prescribed information which includes:
- The deposit amount
- The property address
- The name, address and contact details of the tenancy deposit scheme
- The name, address and contact details of the landlord, tenants and any third parties who have contributed to the deposit
On a custodial deposit protection scheme, the Custodial Terms and Conditions must also be included in the prescribed information.
If a landlord does not protect a deposit, then the tenant can take legal action against the landlord to either have the deposit repaid or put into an approved scheme within 14 days. In addition to this, a landlord will not be able to serve a section 21 eviction notice if the deposit has not been protected or if the prescribed information has not been provided. At the very worst, a landlord can be fined the deposit amoiunt for failing to protect a deposit.
When is a deposit returned?
Deposits will only be returned at the end of the tenancy once the final check out has been agreed and any deductions also agreed. If the landlord holds the deposit in their own bank account, they must communicate with the tenant on 10 days of the tenancy end. The tenant does not need to request that the deposit be returned for the clock to start. For a custodial deposit the landlord will approve the release of the deposit and the tenant can apply to the deposit protection scheme directly to have the deposit returned.
Can money be deducted from the returned deposit?
Sometimes a landlord may want to deduct funds from a tenancy deposit before returning it. This usually happens if the tenant has caused damage to the property, not left it in a clean or fit state, or hasn’t paid their rent. Common deposit deductions include:
- Damage to the property itself
- Indirect damage due to the tenant’s negligence
- Damaged or missing contents (e.g. furniture supplied by the landlord)
- Returning the property in an unclean state (worse than it was originally let)
- Leaving unwanted belongings at the end of the tenancy (without discussing with the landlord)
- Outstanding rent
Rules Around Deductions
It is not a requirement to have a property or even the carpets in the property professionally cleaned, even if they were before the tenant moved in. As long as the property is as clean as it was before the tenancy began, then no money can be withheld. A landlord cannot “upgrade” any items that they believe have been damaged by the tenant. This is called betterment and a landlord is not entitled to betterment. So, if a table was damaged and this was a relatively low-quality pine table, a landlord cannot ask for payment for a solid oak table. The replacement has to be like for like. Landlords cannot withhold money for maintenance jobs for which they are responsible such as heating or wiring, drains or roofs, for example. Finally, when looking at deducting any money from a deposit, fair wear and tear and apportionment needs to be considered. In essence a landlord cannot decide to replace a worn carpet and charge the tenant if that wear was caused through every day, reasonable wear and tear. Also, if there is, say a stain on the carpet which would cost £50 to clean satisfactorily, a landlord cannot charge the tenant for a complete replacement, they can only deduct the cleaning fee. Finally on this point, if a carpet is for example 5 years old with an expected lifespan of 10, but needs replacing due to damage then the landlord cannot charge the tenant the full cost of the replacement. This is because the landlord can only deduct what the carpet is worth in its aged state. So, if a carpet would cost £1,000 to replace but is 5 years old with an expected lifespan of 10 years a landlord would only be able to deduct £500 from the deposit. This is because the carpet would be reasonably expected to depreciate at a rate of £100 per year. After 5 years it would only have a value of £500.
A landlord would typically be required to inform the tenant in writing what deductions they are proposing and why they feel these are appropriate.
A landlord cannot simply deduct the money from the deposit without the consent and agreement of the tenant.
What if there is a dispute?
There can be times when a landlord and tenant are not in agreement about proposed deductions and in these cases the issue needs to be raised with the deposit protection scheme who all run a free dispute resolution service. In these cases, both the landlord and tenant will provide evidence to an adjudicator. This might be communications, photos, videos, inventory reports and also inspection reports. The adjudicator will then make a decision on the deductions. This decision is final as far as the deposit protection scheme is concerned but either the landlord or the tenant can take legal action if they decide to. Disputes can often be avoided by ensuring that there is a very detailed, accurate and agreed check in condition report as well as regular inspections of the property.
For the most part rental deposits are a standard feature when renting a property and understand the rules behind deposits is important for both tenants and landlords.
