A Landlord's Guide to Deposits and Tenancy Protection
A tenancy deposit, sometimes called a security deposit, is a landlord’s insurance against damage, loss of rent or cleaning bills.
Landlords must, by law, place their tenants’ 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.
The deposit is then returned to the tenant at the end of the tenancy, if they've met the terms of their tenancy agreement, or a landlord can deduct money for reparations should you need to.
Here’s all you need to know about deposits and tenancy protections schemes.
What is a deposit?
A tenancy deposit offers landlords financial security should their buy to let investment be damaged, items are missing or broken, there are rent arrears or the tenant has not left the property in a habitable state.
If, at the end of a tenancy, a tenant has broken terms of the tenancy agreement, then a landlord can deduct a part, or all of, a deposit to cover the costs.
How much deposit can I charge?
Since the introduction of the Tenant Fees Act in 2019, the maximum security deposit is five weeks rent for tenancies of less than £50,000 per year - for tenancies over that figure, 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.
Tenancy protection services do just that, 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 must inform their tenant which scheme they have used within 30 days of receiving the deposit.
You can use any of the following schemes if your property is in England or Wales:
There are separate TDP schemes in Scotland and Northern Ireland.
Deposits on an assured or protected tenancy do not need to be put in a scheme.
Some protection schemes offer, usually for a fee, the option to keep the deposit in your bank, 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 your deposit is protected, you will receive a certificate. Information about the deposit protection scheme should be included on the tenancy agreement and, once the money has been deposited, landlords must email the certificate to the tenants.
What happens when the tenancy ends?
The deposit must be returned to your tenants within 10 days of you both agreeing how much they’ll get back. In the event of a dispute, the deposit is protected in the scheme until the issue is settled.
The tenant has a duty of care to return a property in the same condition at the end of the tenancy as they found it at the start and as listed on the initial inventory report – with allowance for fair wear and tear.
Why do landlords claim against a deposit?
End of tenancy cleaning is the most contested security deposit issue, with damage to carpets and paint the two most common areas of dispute in our experience.
According to figures from the Deposit Protection Service, the most common reasons for landlords who made a claim against their tenants’ deposit are:
- 63% - cleaning
- 53% - damage to property and contents
- 37% - redecoration
- 23% - rent arrears
What do I do if I need to claim against it?
The letting sector’s rule of thumb is that a tenant cannot be held responsible for damage at the end of a tenancy caused by ‘reasonable use of the premises and the ordinary operation of natural forces’.
But this broad outline leaves a great deal open to subjectivity and it’s not unusual for disputes to arise.
Where landlords and agents do retain a deposit, they must explain to the tenant in writing why they are doing so. The burden of proof lies with the landlord or letting agent. For example, you will need to supply pictures of the damage and receipts for the work involved. You will also have to prove that the cost is reasonable.
How to pursue a claim and how to avoid a dispute
- How long has the tenant been there? - If the renter has been in situ for five years, scuffs on the wall will be expected. It is likely to be deemed unreasonable for a landlord or letting agent to charge for a whole room to be repainted for a few small scuffs marks after a tenancy of this length.
- Get a quote from a licensed contractor you trust before issuing a deduction to a tenant and pass this on to them. Renters will be less likely to contest a fee if they understand what exactly they are being charged for and that it isn’t simply an arbitrary number.
- Take photos of the property before the tenants move in that you can refer back to when they come to hand in the keys.
- Include an inventory with a check-in and a check-out report.
- Make regular inspections of the property - making sure to agree a time with tenants at least 24 hours before.