Most landlords understand the benefit of a tenancy deposit and how it works. In reality, when the end of tenancy comes around there can be a great deal of confusion about what can and can’t be claimed as a deduction from the deposit.

In this article, NRLA deposit protection provider, mydeposits looks at the most common deposit deductions, what landlords can and can’t claim for and why a deposit clause is essential. It addresses fair wear and tear as well as betterment, both of which can be seen as grey areas when it comes to deposit deductions. The article also draws on real life examples as described in case studies and includes tips and advice on how to reduce the likelihood of disputes happening in the first place.

When the tenancy ends

Most tenancies end amicably, with the tenant handing back the keys and agreeing with the landlord or agent on any costs that need to be met. We have found that most end of tenancy negotiations over costs are dealt with in this way, simply by talking, listening and negotiating to reach an amicable solution, so we would encourage you to first: 

• check the tenancy agreement to see who is responsible for what 
• be aware of the condition of the property and its standard of cleanliness at the start of the tenancy so expectations can be managed by both sides 
• understand how ‘fair wear and tear’ and betterment can affect any claim
• be fully prepared and open to discussion and compromise  

However, a minor percentage of tenancies end up in dispute over how the property has been left, with the landlord asking for compensation from the protected deposit.

This guide will cover: 

• what a tenancy deposit is
• what can be deducted from the deposit
• the most common deposit deduction reasons with case study examples
• understanding fair wear and tear and betterment
• why you may not be able to claim for a deduction
• how to avoid disputes

The tenancy deposit

A tenancy deposit is a sum of money that the landlord (or their agent) can request at the beginning of a tenancy as security against non-payment of rent, damage to property, or removal of furniture. If you rent out your home on an assured shorthold tenancy that started after 6 April 2007 and a deposit is taken, it must be deposited in one of the government approved tenancy deposit protection (TDP) schemes available to you within 30 days of receiving it, and the tenant informed about the protection.

The main reason it’s worthwhile taking a deposit is to make sure that if the tenant does something that causes damage to your home, you can keep some or all of the money to help cover the cost of repairs. It also helps the tenant to cover the cost of any issues that need fixing – it can just be taken out of the deposit they paid at the start of their tenancy without needing to find the money at the time.

What can be deducted from the deposit?

As a landlord, you can make claims from the deposit for the following reasons if you can demonstrate you have suffered financial loss:

Cleaning: Leaving the property - or part of it - in an unclean state is by far the most common reason for claims. Landlords and tenants must understand that the property only needs to be left cleaned to the same standard it was when let, and not necessarily cleaned to a professional standard, if that would mean it is better. So, landlords can only ask for compensation to bring it up to the same standard as at the start of the tenancy.

Damaged or missing items: Any damage or missing item claims should be on a like for like basis considering the item’s age, quality, lifespan and replacement cost less reasonable wear and tear. Tenants should report any damage to the landlord as soon as it becomes apparent and before any attempt to repair it themselves; then agree the next steps with the landlord.

Redecoration: If redecoration is needed due to the tenant causing damage, or maybe they have made alterations without your consent, you can claim costs for returning it to the same standard, remembering to allow for fair wear and tear.

Gardening: The tenancy agreement should set out the tenant’s responsibilities for maintaining external areas such as front and rear gardens - lawns, beds, driveways (weed free) etc. If maintenance of any areas is included, they should be left in a similar condition as when the tenant moved in – allowing for seasonal change or adverse weather conditions.

Rent arrears: Following the process to recoup any rent arrears and applying for possession of your property will mean that you can recoup some, or all, of the outstanding rent through the deposit and potentially minimise future loss.

Unpaid utility bills: Where the tenant is responsible for any utility bills and there are outstanding bills at the end of the tenancy, you may be able to claim these from the deposit if they are still in your name. For instance, if the gas company installed a prepayment meter and you have had to pay to change it back before you rent out the property again. If the bills are in the tenant’s name, the provider will generally continue to pursue the tenant. Always make sure to provide invoices for any tenant debt you have repaid.

The tenant ending the tenancy early: If the tenant leaves the tenancy without notice or agreement and you are owed rent as a result, you can claim from the deposit.

Top tip: Your deposit clause in the tenancy agreement should set out the circumstances and reasons why you as a landlord may make deductions from the deposit, either in full or part (e.g. to repair damage caused by tenants, for cleaning or rent arrears). This is a really good place to start when negotiating and advising a tenant why you are claiming from the deposit.

Dispute case study: Garden maintenance responsibility

The following case study shows the importance of having a garden clause in the tenancy agreement, an inventory with good photographs, keeping quotes and making allowances for seasonal growth, as well as showing how adjudicators think:

Deposit amount: £875

Amount disputed: £319

The tenant said:

• they accepted that some garden maintenance to the back garden was needed, but claimed that there are always changes to a garden as plants grow
• the front garden was left in the same condition as when they moved in
• the landlord has been allowed to withhold £100 from the deposit for the necessary garden work but the quotes and amount being claimed are unrealistic

The agent’s response was that:

• the front and rear gardens were left in an overgrown state, footpaths were left with crayon markings and weeds
• overall, the gardens were not well maintained
• the tenant is responsible for garden maintenance in line with the clause in the tenancy agreement and should have returned it to its original condition, allowing for some seasonal growth
• the landlord is claiming the full cost of putting the garden back to its original condition

What evidence was given?

• Tenancy agreement, emails, independent check-in and check-out reports and quotes

What was decided and why?

• The check-in report records the garden to the front and rear as being in ‘good seasonal order’
• The photographs embedded in the report showed some slight overgrowth on the hedge in the front garden and rear lawn with a few weeds growing in the borders and footpath at the back
• By comparison, the written detail in the check-out report and photographs show that both front and rear garden were ‘overgrown’ with weeds, the lawn was patchy and the patio was unclean and had crayon marks on it
• The adjudicator decided that the tenant was responsible for additional work to the garden at the end of the tenancy, which would return it to the same condition/seasonal order it was in at the start of the tenancy
• The £290 quote for garden maintenance included trimming hedges, mowing lawns, tidying borders and removing all weeds and crayon markings
• The tenancy started in the autumn and ended in the summer, so some allowance was made for seasonal differences and the overgrowth recorded in the check-in report, as these are not the tenant’s responsibilities, so the landlord was awarded 70 per cent of the amount claimed
• As the tenant had already agreed to £100 towards this claim, the landlord was entitled to the difference

Learning points:

• The tenant is only responsible for returning the gardens to the same seasonal order/condition as when they moved into the property
• Check-in reports should always give clear descriptions and be supported by good quality photographs which will be the basis for any future discussions
• Check-out descriptions should be detailed, and photographs should be taken from the same angle, so a clear comparison can be made
• Consider seasonal times of year and when tenancies start and end, as conditions of gardens may differ because of this and deterioration may not just be due to neglect or lack of maintenance by the tenant
• Make sure all quotes and invoices detail the exact work being carried out by the contractor so that it can be matched to the work needed at the end of the tenancy. This will help with negotiating costs at the end of the tenancy, and if necessary, help an adjudicator make a fair decision on what is reasonable

Read mydeposits guide for the NRLA, the essential guide to garden maintenance for landlords, for more advice on how to avoid end of tenancy issues relating to the garden.

What is fair wear and tear?

Basically, fair wear and tear is the deterioration of an item or area, due to its age and normal use. So, you should only propose a deposit deduction from the tenant when the deterioration was due to the tenant’s actions or omissions and could have been avoided. Not simply from the tenant living in the property.

The big question is always, what part of any deterioration would have happened naturally anyway and is considered ‘reasonable’?  Or is the damage ‘unreasonable’ if it’s over and above what is normal use, considering all the circumstances?

The simple fact is that everything will need to be replaced or renewed at some point in time.

When assessing fair wear and tear, there are five key things to consider. Having all the information relating to these should lead to a productive and successful discussion with your tenant and a mutually acceptable settlement.

Age: The older the item and the more tenancies it’s survived, the more wear and tear it is likely to have suffered. You should always consider this when managing your expectation of what a reasonable cost is.

Life expectancy: The life expectancy of an item, or area, can depend on its quality and the amount it’s used. This may be related to the number of hours in the day the property is occupied or the number of tenants in the property.

Quality: The quality of an item is relevant in helping to negotiate costs towards repair or replacement, yet inventories rarely record the quality of items such as carpets, so invoices are again vital as well as photographs showing any ‘brand’ names (appliances and sanitary ware).

Your tenants: Are your tenants professionals, students or families with young children or pets living in the property? This should be considered when assessing the lifespan of areas and items and what is reasonable wear and tear.

Tenancy length: The length of a tenancy is often a deciding factor when managing your own expectations on whether the item or area has little or no value left in it, because of its condition at the start and the length of the tenancy.

Top tip: What is certain, is that unless the issue is cleaning, there will be some wear and tear that needs to be applied to a claim, even if the item or area was new at the start, as the length of the tenancy will attract some wear.

For more information, read the mydeposits NRLA guide, Wear and tear – is it fair?

What is betterment?

Betterment is where any compensation leaves the landlord financially or materially better off at the tenant’s expense. For example, replacing a five year old carpet with a brand new one and asking the tenant to pay the full cost or replacing it with a better quality carpet and asking for a higher contribution. Instead, you should apply a proportion of the replacement cost on a like for like basis, even if you want to upgrade the item or area. Landlords can choose to pay for an improvement but not pass that on to the tenant.

Unlike fair wear and tear, betterment applies to both ‘condition’ and ‘cleanliness’ which is why you can only claim for cleaning required to put the property back to the standard it was in at the start.

Top tip: This is a good time to remember the value of having a quality check-in inventory so that you have good evidence to discuss and negotiate with.

Dispute case study: carpet cleaning, damages, importance of inventories

This case study highlights the importance of a detailed check-in report that includes detail as well as photographs and how fair wear and tear affects any claim.

Deposit amount: £1,425

Amount disputed: £330

The tenant said:

• the carpets were not very clean when they moved in and there were lots of small marks throughout, so they should not be charged for them
• there was already a small crack in one of the freezer drawers which worsened over the two year tenancy, so this is wear and tear
• the dining room table was not new and already had lots of marks on it. Being wooden it naturally deteriorates with use

What evidence was given?

• Tenancy agreement, check-in and check-out reports, receipt for new freezer drawer, invoice for professional cleaning

What was decided and why?

• The check-in report was brief, in a tick box style ‘excellent/good/poor’ with minimal written description. It recorded the carpets, freezer and dining table as being generally in ‘good’ condition, with the freezer being ‘in used order’ and the dining table having ‘some wear’. Only a few photographs were included in the report showing an overview of each area and there were no separate comments on cleanliness
• The check-out report recorded the carpets as lightly soiled with numerous small marks and one large stain in the centre of the living room. One of the freezer drawers had a crack in one corner and the dining table now had several small scratch marks. Detailed photographs of each area were provided as evidence
• Carpet cleaning: The living room carpet, on balance, was found to have been returned cleaned to a worse standard, with a large stain not recorded or reported by the tenant, on check-in. With the lack of detail on the standard of cleanliness in the check-in report or any invoice to show that a professional clean was carried out before the tenancy start date, only a small amount could be awarded towards carpet cleaning
• Freezer drawer: No award was made for the freezer drawer due to the lack of detail in the check-in report and the lack of photographs showing the exact condition of the drawers and whether a crack was already present
• The adjudicator made a small award for some scratches on the dining room table. The landlord’s claim was reduced considerably as it was recorded as having some wear in the check-in report and the accompanying photographs were too distant to show the extent of its use

Decision:

Tenant: £200

Landlord: £130

Learning points:

• A tick box style check-in report is not good enough to accurately record the condition and standard of cleanliness in a property
• Include as much detail and description as possible for each item/area in the check-in report so there can be no doubt about original condition. Use short, descriptive words such as three stains, carpet faded by patio door, iron burn mark. This will help in the event of needing to discuss any deterioration to the property when the tenancy ends
• Include both the level of cleanliness AND condition, as they are not the same. Fair wear and tear will apply to the condition of all items and areas but does not apply to cleanliness
• Always take detailed photographs for the check-in report so they are comparable to the check-out report and all differences can clearly be identified
• Use a measuring tool, or even a hand, to show how large a stain, mark or scuff is when taking photographs

The best way to make sure you are protected

It is important that landlords do all they can to make sure they are protected and can claim from the deposit if they need to.

To make a deposit deduction you must:

• clearly explain and outline what you can claim for in the tenancy agreement
• protect the deposit with a deposit protection scheme within 30 days of receiving the deposit
• have carried out your legal responsibilities as a landlord, including any required maintenance so your tenant has been provided with a safe home to live in

In addition, when negotiating a deposit claim you should:

• have a robust and detailed inventory with good photographs and be able to show that the tenant was sent a copy
• have both detailed check-in and check-out reports for comparison
• show that you or your agent have carried out and documented regular inspections
• show any relevant communications from the tenant have been responded to and issues dealt with in a timely manner
• Have any other supporting evidence such as contractors’ reports, invoices and estimates with a breakdown of costs

In doing these things you are putting in place a solid foundation which will make any claim for financial compensation easier to negotiate.

How can I reduce the likelihood of disputes?

Be clear in letting your tenant know what you expect from them during the tenancy, what is and what is not allowed in the property and how it should be left when the tenancy ends. This can be achieved through:

• building and maintaining a good relationship with tenants, this should help with any necessary negotiation
• looking after your property so it is in the best possible condition before the tenancy starts
• carrying out a detailed check-in inventory with supporting photographs
• scheduling periodic inspections to check in on the tenant and the property

Top tip: Carrying out periodic inspections can highlight any issue that the tenant has not yet reported or anything likely to cause damage (such as drying clothes on radiators). This will allow you to sort any repairs and discuss who is responsible at the time, as well as possibly explain how to prevent it happening again or getting worse.

Why do landlords lose deposit disputes?

Most of the time landlords or their agents lose disputes due to a lack of robust and relevant evidence or just not applying fair wear and tear. It is always important to make sure that you can paint a picture for an adjudicator so that they can establish both a breach of the tenancy and the loss suffered as a result of the breach. Avoid making the following common errors:

• Not producing comparative check-in inventories and check-out reports
• A poor inventory with a lack of detail
• Invoices provided with no breakdown of what is being done for the cost
• Making no allowance for fair wear and tear

Any of the above could result in an adjudicator deciding that the cost being claimed amounts to betterment.

Top tip: Prevention is better than cure. Begin gathering documentation at the very start of the tenancy. Make sure it is detailed and thorough so that it is fit for purpose for any negotiation needed and deal with any issues as and when they arise. This will all go a long way to avoiding a dispute.

In summary

In an ideal world the deposit will be returned in full to the tenant at the end of their tenancy. However, research shows that around 30 per cent of deposits are subject to deductions and around two per cent end in dispute, so it’s key that you have the evidence to back up reasonable deductions and avoid it ending up with an adjudicator.

To do this make sure that your tenant knows what is expected of them; that all your paperwork is robust and detailed; that you carry out regular inspections of the property and maintain a good working relationship with the tenant.

Negotiation is nearly always successful if everyone is reasonable and willing to listen, and you can clearly explain why and how you calculated any proposed deductions.

If you are unable to reach an amicable resolution, you have the option of using the free Alternative Dispute Resolution (ADR) services through mydeposits for an independent and impartial decision. Alternatively, the Property Redress Scheme offers free mediation to members. 

NRLA members get a 30 per cent discount on the deposit protection fee when they protect a deposit with the mydeposits insurance-based scheme in England and Wales.