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Tenancy deposits act as a safety net for landlords, providing financial protection when tenants breach their tenancy agreements. Without this protection, landlords could find themselves out of pocket if a tenant stops paying rent or causes malicious damage to their property.
Tenant deposits should be kept in a government-approved tenancy deposit scheme. These schemes help to safeguard deposits and establish professional and efficient processes for dealing with claims and disputes.
In this article, we will learn more about the tenancy deposit scheme and explain how landlords can successfully navigate tenancy deposit claims and disputes.
Landlord Responsibilities Regarding Tenancy Deposits
Since the Tenancy Deposit Scheme was introduced in 2007, all landlords must place tenant deposits into a government-approved TDP scheme within 30 days of receiving them. Landlords that fail to do so risk receiving a financial penalty for non-compliance.
Before we get into landlord obligations regarding tenancy deposits, let’s review the basics of the Tenancy Deposit Scheme.
The Tenancy Deposit Scheme
The UK government introduced the Tenancy Deposit Scheme (TDS) in 2007.
The scheme was introduced in response to difficulties many tenants faced when reclaiming their deposits from private landlords. The Tenancy Deposit Scheme aims to safeguard tenancy deposits, regulate deposit dispute resolution, improve standards in the private rented sector, and protect the interests of tenants and landlords.
There are three government-approved TDP scheme providers, they are:
Each provider offers two different types of schemes; custodial or insurance-based. With an insurance-based scheme, the landlord retains the deposit in their bank account for the duration of the tenancy and then returns the deposit to the tenant. With a custodial scheme, the TDS holds the deposit for the landlord and returns the agreed amount to the tenant at the end of the tenancy.
Landlord’s Key Obligations Regarding Tenancy Deposits
Now that we understand what the TDP scheme is let’s take a closer look at what landlords’ responsibilities are surrounding tenancy deposits.
- Use a government-approved TDP scheme – Landlords must place all tenancy deposits into a government-approved TDP scheme within 30 days of receipt. Tenants can take a landlord to court for failing to do so.
- Provide tenants with information about the scheme – Within 30 days of receiving the deposit from the tenant, landlords must provide the tenant with the ‘prescribed information’, which is set out on the government website here. Key information includes the name and contact details for the TDP scheme being used and its dispute resolution service.
- Adhere to the tenancy deposit cap – The cap prevents landlords from requesting unreasonably high deposit amounts. The deposit cap rules can be found in the Tenant Fees Act 2019. They state that, where annual rent is up to £50,000, a maximum of five weeks’ rent can be charged. And where annual rent is over £50,000 and under £100,000, a maximum of six weeks’ rent can be charged.
- Only claim fair deductions – At the end of the lease, landlords should ensure that any deductions the claim from tenant deposits are fair. We will look at some common reasons landlords claim deposit deductions later in this article.
- Engage in fair dispute resolution – If there is a dispute over any amounts to be deducted from the deposit that cannot be resolved by the tenant and landlord themselves, then they should use the TDP provider’s alternative dispute resolution (ADR) service.
- Return the deposit promptly – Once an agreement has been reached about how much of the deposit is being returned to the tenant, the landlord should return the amount within ten days.
Understanding and adhering to their responsibilities surrounding tenancy deposits can help landlords maintain a positive relationship with their tenants and reduce the risk of disputes over tenancy deposits.
Grounds For Landlords to Deduct From Tenant Deposits
If it comes to the end of the tenancy and the landlord is not happy with the property’s condition or the tenant owes money, they may be able to deduct money from the tenant’s deposit to cover these expenses.
What Constitutes a Fair and Reasonable Deduction?
It is, however, important to remember that only fair and reasonable deductions should be made. For example, (and I’m drawing on my own past experiences as a tenant here), if a shelf in the fridge has broken, then the landlord should only charge for the price of replacing the shelf, not buying an entire new fridge. Likewise, if a tenant caused damage to a £20 rug, landlords may deduct £20 from their deposit to buy a like-for-like replacement, not £100 to replace and upgrade it.
Landlords should also take into account the rule about fair wear and tear. Tenants are not liable for the deterioration of fixtures, fittings, and furniture over time or damage caused by fair usage. Before making deductions, landlords should consider the age of the fixture, fitting, or damaged furniture and the condition it was in when the tenant moved in. Has damage occurred due to fault on the tenant’s behalf or due to natural ageing?
Landlords should also be careful to ensure that they have included a deposit clause in the tenancy agreement informing tenants of the circumstances under which money may be deducted from their deposit. This can help to avoid any disputes about deductions later down the line.
Common Reasons Landlords Claim on Tenancy Deposits
We’ve listed below some costs that landlords commonly claim from tenants’ deposits.
It’s important to note that landlords can only deduct money from a tenant’s deposit to help recoup costs they have incurred because of the tenant breaching the rules of the tenancy agreement.
- Rent Arrears – If tenants fall into rent arrears, landlords may be able to recoup some or all the amount owed from the tenancy deposit.
- Unpaid utility bills – In instances where the tenant is responsible for paying utility bills, but there are outstanding bills at the end of the tenancy, the landlord may be able to claim the amount owed from the tenancy deposit.
- Cleaning – If tenants leave a property unclean, then landlords may be able to deduct money from their deposit to bring the property up to the same standard of cleanliness that it was at the start of the tenancy. However, it would be unfair for a landlord to deduct money to have the property professionally cleaned if it had not been professionally cleaned at the start of the tenancy.
- Redecoration – If, at the end of the tenancy, the property needs to be redecorated due to damage caused by the tenant or changes that have been made without the landlord’s consent, then the landlord may be able to deduct the amount required to bring the property up to the same standard it was in at the start of the tenancy.
- Damaged or missing items – If fixtures, fittings, or furniture have been damaged or are missing from the property at the end of the tenancy, then the landlord may be able to claim the cost to replace them.
Whilst landlords have the right to deduct from a tenant’s deposit under circumstances like those listed above, they must take care only to request fair and reasonable deductions. To do so, they should always consider the item’s condition at the start of the tenancy and natural wear and tear. Being explicit about deposit deductions in the tenancy agreement can also help to reduce the risk of potential disputes over deductions.
How to Handle Disputes Over a Tenancy Deposit Claim
If you need to claim money from a tenant’s deposit to cover damages or unpaid rent, things may not always go smoothly.
Alternative Dispute Resolution (ADR)
If the tenant does not agree with the deduction being made by their landlord, then they can dispute the claim. Each government-approved TDS provider offers a free alternative dispute resolution (ADR) service. The result of the ADR process is binding, so both parties must first agree to participate.
ADR services act as an alternative to going to court. These services use the adjudication method to resolve deposit disputes. The adjudication method is an evidence-based process where an impartial and qualified adjudicator decides the outcome.
During the ADR process, each party will be invited to submit their evidence to the adjudicator within a specified timescale. The adjudicator will then examine the evidence before deciding how the deposit should be distributed.
What Evidence Can Be Submitted During the ADR Process?
The more relevant evidence each party submits during the ADR process, the better their chances of achieving a favourable outcome.
The types of evidence that are commonly submitted include:
- The tenancy agreement – The tenancy agreement should be submitted as evidence during any dispute because it plays a crucial role in understanding the contractual obligations of each party.
- Inventory reports – Inventory reports are usually created at the start and end of a tenancy and provide a detailed overview of the contents and condition of the property. These reports can demonstrate any changes or damages to a property or its content during the tenancy period.
- Property inspection reports – If property inspections have been carried out regularly throughout the tenancy period, these reports can give insight into the state of the property throughout the tenancy and potentially highlight when any damage occurred.
- Photographic and video evidence – Clear before and after photos or videos can provide vital evidence of damage. Ideally, photographic evidence should be signed, dated, and accompanied by a narrative explaining to the adjudicator what they are looking at.
- Invoices and receipts – Receipts and invoices can be used to prove the cost of any repairs, cleaning, and replacements incurred.
- Estimates and quotations – If the work has not yet been completed, an estimate or quotation can be used to prove the potential costs.
- Rent account statements – If the landlord claims rent arrears, then bank statements showing rent arrears should be submitted as evidence.
- Utility bills – Landlords claiming compensation for outstanding utility charges that the tenant was responsible for paying can submit the outstanding bills as evidence.
Using landlord property management software like Landlord Vision can help landlords to organise and securely store evidence that may be useful in a deposit claim or dispute.
Going to Court Over Deposit Disputes
Going to court can be a stressful, time-consuming, and expensive process, which is best avoided in most cases.
The cost of fees and legal representation when going to court adds up very quickly. In most cases, both the landlord and the tenant are likely to spend more than the claim’s value by going to court. Because of the relatively low value of most deposit disputes, even solicitors are likely to advise against going down this route.
You could try mediation if one party refuses to participate in the ADR process. Mediation is quicker and cheaper than going to court, and you are not obliged to accept the results of the process.
Steps Landlords Can Take to Prevent Deposit Disputes
While it is impossible to avoid every potential dispute, landlords can minimise the risk of running into problems by being proactive and prepared. Implementing the following strategies can go a long way in preventing deposit disputes from arising:
- Maintain the rental property to a high standard.
- Maintain a good relationship with tenants.
- Conduct regular property inspections.
- Carry out a detailed check-in inventory.
- Make reasonable allowances for fair wear and tear.
- Understand and adhere to the rules surrounding Tenancy Deposit Protection schemes.
Finally, we cannot stress enough how important it is for landlords to collect and securely store any documentation and evidence that may be useful in the event of potential future disputes. Many landlords lose deposit disputes simply because they did not gather sufficient evidence throughout the tenancy. By diligently keeping records, you’ll be well-prepared should any issues arise.
