Dealing with Tenants deposits for residential property

November 22, 2019

Christos Christou
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The vast majority of landlords require a deposit from tenants before letting their property to them. It is vital that Landlords, whether they are using a managing agent or not, are fully aware of the requirements of legislation surrounding deposits. Here are a few areas that need careful consideration.

 

Amount of deposit

The Tenant Fees Act 2019 introduced new caps on the amount that can be taken as a tenancy deposit from 01 June 2019. Where the annual rent is up to £50,000 then a maximum of 5 week’s rent can be taken as a deposit. Where the annual rent is more than £50,000 then a maximum of 6 week’s rent can be taken. The cap applies to new fixed term tenancies and renewal tenancies after 01 June 2019. The cap does not apply to tenancies which continue as statutory or contractual periodic tenancies.

 

After receiving the deposit

Following receipt of the deposit the landlord is required to protect the deposit with a government backed tenancy deposit scheme. This can be an insurance based scheme where the landlord keeps hold of the deposit themselves or a custodial scheme where the deposit is paid into the scheme. In England and Wales the deposit can be registered with Deposits Protection Service, My Deposits or Tenancy Deposit Scheme.

The Deposit must be protected using one of these schemes within 30 days of receipt of the deposit. The tenant must also be provided with a copy of the tenancy deposit certificate and also the prescribed information, which sets out details of the scheme, again within 30 days of receiving the deposit.

If this is not done then the consequences to the landlord are twofold.

Firstly they will be unable to serve a section 21 notice on their tenant to evict them on a “no fault” basis unless they first comply with the legislation or alternatively return the deposit in full to the tenant before serving the notice.

Secondly, and perhaps more importantly, failure to comply with the Tenancy Deposit Scheme leaves the landlord open to the tenant making a claim for the return of the deposit in full plus compensation of 1 to 3 times the amount of the deposit. The amount of compensation will depend on the seriousness of the breach. For example a landlord who has never protected the deposit and therefore not provided any of the documentation is likely to face having to pay the tenant the full 3 times the deposit as compensation.  Another example is a landlord who has protected the deposit in time but failed to provide the relevant documents could face having to pay the tenant 2 times the deposit as compensation.

 

Return of the deposit

At the end of the tenancy the deposit should be returned to the tenant within 10 days once the landlord and tenant have agreed how much of the deposit is to be returned. If there are no issues with the property then the full amount can be returned. If there are issues then the landlord and tenant may agree the amount of any deductions to be made. It is always advisable to record this agreement in writing to avoid any potential claims in the future.

If the landlord and tenant cannot agree on the amount to be returned the landlord should detail in writing to the tenant the deductions that they wish to make from the deposit setting our clear reasons and justification.

If the tenant does not agree then the amount of the deposit that is in dispute is held aside. The amount of the deposit that can be agreed should be returned to the tenant. The dispute resolution process for the relevant tenancy deposit scheme used by the landlord comes into play. They act as a mediator and will consider evidence supplied by each party in reaching their conclusion.

Evidence can include check in and out inventories, tenancy agreements, and reports of property inspections - all preferably signed by the landlord/agent and tenant.  In addition, the adjudicator will want to see copies of invoices, estimates or receipts, video and photographs of the property before, during and after the tenancy if available, communication between the parties and witness statements.

Once all the evidence has been considered the parties will be notified of the decision of the adjudicator in writing and the amount of the deposit in dispute will be distributed in accordance with the findings.

 

Disclaimer

This article is provided for informational purposes only and it does not constitute legal advice and cannot be relied upon as such. This article may not be updated after it was first written even if the law in this area changes.It is recommended that specific professional advice is sought before acting on any of the information given. If you would like to make an appointment with one of our team to discuss this or any other matter please call 01323 720142.

 

 

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