A Guide to Protecting Your Tenants’ Deposits
Published on September 30, 2023 by Sarah Mac
One of the key responsibilities as a landlord is to safeguard the deposits of tenants. Tenant deposit schemes are crucial in ensuring that both landlord and tenant are treated fairly, and that disputes are resolved amicably.
Here’s a guide to understanding the importance of tenant deposit schemes, and how to protect tenants’ deposits effectively.
What is a tenancy deposit?
A tenancy deposit, sometimes known as a security deposit, is an amount of money paid by the tenant to the landlord or letting agent before the tenant moves into the property. It is held for the length of the tenancy, and returned to the tenant at the end, minus any deductions for damage to the property, or for rent that might be outstanding.
What are tenant deposit schemes?
Tenant deposit schemes are government-backed initiatives designed to protect the money that tenants pay as a deposit when renting a property.
The scheme was introduced in 2007 with the aim of protecting tenants who had few rights when it came to getting their deposit back. Prior to 2007, some landlords were keeping tenants’ deposits or overcharging for end of tenancy services, such as cleaning.
The revised legislation means that all tenant deposits must be protected in a government-approved scheme. If, at the end of the tenancy, the landlord wants to hold on to any of the money, it is their responsibility to prove that their reason for doing so is valid and reasonable.
Is it necessary to take a deposit from a tenant?
It is not necessary or a legal requirement to take a deposit from a tenant, but it makes sense because it protects both parties. It gives the tenant more of a reason to take care of a property and to pay the rent on time, and it provides a back-up to the landlord in case the tenant does not pay the rent or causes damage to the property.
If the landlord takes a deposit from a tenant, it must be held in one of three approved deposit schemes.
Steps for tenancy deposit protection
Choose an approved deposit scheme
The first step is to select an approved deposit protection scheme. There are three main tenant deposit schemes to choose from in the UK:
Each has its own advantages, so take the time to research them and find out which best suits you.
Notify tenants
Once you have received a deposit, you must protect it and notify tenants within 30 days. You must give them all the necessary information about how their deposit will be protected, including details of the chosen scheme.
In this communication, you should also provide details about why some of the deposit might be retained, how to apply to get the deposit back, and what to do if there’s a dispute about the deposit.
Keep records
You should maintain records of the tenancy deposit protection process, including evidence of the deposit protection and any communication with tenants. This documentation will be invaluable if there are any disputes.
Handle disputes fairly
If, at the end of the tenancy, there is a dispute about returning the deposit, you should engage in fair and open dialogue with tenants.
If an agreement cannot be reached, the deposit protection scheme will offer an impartial dispute resolution service to mediate and make a final decision.
Return the deposit promptly
If there are no disputes, be sure to return the deposit to the tenant promptly. The deposit must be returned within 10 days of the agreement being made about how much will be returned.
Deductions and charges
If you need to make deductions from the deposit for damages or unpaid rent, be transparent and provide evidence to support your claims. Always follow the rules and guidelines outlined by the deposit protection scheme.
You can, providing you have evidence to support your action, deduct costs for repairs or for replacing items that have been damaged, broken or removed. You can also deduct reasonable charges for cleaning the property and for any unpaid rent.
What you cannot charge for is fair wear and tear, or to improve the property to a better state than it was at the beginning of the tenancy. Neither can you charge for costs relating to disputes.
The importance of official tenant deposit schemes
It’s essential that landlords protect tenants’ deposits through official deposit schemes. It’s not just a legal requirement, but a fundamental aspect of being a responsible and professional landlord.
By complying with the law and following the steps outlined above, it creates a positive and trust-based relationship with tenants, whilst safeguarding financial interests.
It’s worth remembering that as part of tenancy deposit protection, an independently compiled inventory not only looks more professional than a DIY version, but also carries more weight when being assessed by a deposit scheme independent adjudicator.
To find out more about our landlord inventory services, please get in touch.