Three tenancy deposit mistakes and how to avoid them

A tenancy deposit, often called a security deposit, is typically taken at the start of a tenancy to provide a financial safety net if rent goes unpaid or the property is damaged. While it's not a legal requirement, it's considered best practice and helps encourage tenants to look after the property.

Managing deposits, however, can be challenging. Even small mistakes can lead to fines, disputes, or issues regaining possession. This guide highlights three common deposit mistakes landlords make and how to avoid them.

Did you know that if you take a tenant’s deposit but fail to protect it and serve the correct paperwork within 30 calendar days, you could be fined up to three times the deposit amount? 

In addition, failure to comply with deposit protection rules can impact your ability to serve a valid Section 21 notice in the future. 

To comply with the law, landlords must: 

Protect the tenant’s deposit in a government-approved tenancy deposit protection scheme within 30 days of receiving it. 

Serve the prescribed information to the tenant - also within the same 30-day timeframe. This includes the scheme’s prescribed information template, the scheme rules documentation and the deposit protection certificate. 

The NRLA partners with a range of government-backed deposit protection schemes, offering landlords trusted options to stay compliant.

It's important to be aware that at the end of a tenancy, slowing down the return of the deposit by not following the correct deductions process, can result in a dispute. 

Here’s the process you should follow… 

At the end of a tenancy, you should perform a detailed check-out inspection and compare this with your original inventory. 

Following the check-out, if there are issues identified with the property then propose a deduction from the deposit. Any money not disputed by either party should be returned as soon as possible, ideally within 10 days although this is not a legally binding timeframe. 

Six years ago, the Tenant Fees Act introduced new rules around the maximum amount that landlords in England can charge when taking a security deposit. 

These rules make it clear that deposits are capped at the equivalent of five weeks’ rent for properties with an annual rent under £50,000. 

The cap increases to six weeks’ rent for properties with an annual rent of £50,000 or more. In England, ASTs, student accommodation, and licences are caught by this. 

However, if the tenancy started pre-2019, so you took the deposit before the Tenant Fees Act existed, and a part of it was in excess of the cap, then you can simply refund the deposit at the end of the tenancy in the usual way, and don’t have to return the excess provided the tenants remain on the same tenancy. 

Searching for more guidance on tenancy deposits, including betterment, wear and tear, and deposit deductions? Our partners, TDS and my deposits have more expert guidance on this.  

• Protect the deposit properly: Use a govenerment approved scheme, and serve the required paperwork within 30 days of receiving the deposit
• Return deposits promptly: After check-out, compare against your inventory, propose deductions if needed, and return any undisputed amount promptly ideally within 10 days.
• Know the deposit cap rules: For tenancies in England, deposits are capped at five weeks’ rent (or six weeks if annual rent is £50,000+). Pre-2019 tenancies with higher deposits may be exempt if the tenancy hasn’t changed.
• Stay compliant: Failure to meet deposit rules can lead to fines and limit your ability to serve a Section 21 notice.