Deposits: Whose money is it anyway?

Faiz Rashid, NLA Local Representative for Yorkshire, explains the importance of understanding the status of tenancy deposits.

Most landlords ask new tenants to pay a month’s deposit as security in case of any damage to the property or non-payment of rent by the tenant.

It’s the only real protection available to us should things go wrong later on.

However, what happens to that money at the end of the tenancy is also one of the most heavily challenged decisions a landlord has to make.

To deal with these disputes, the Government introduced mandatory tenancy deposit protection for most tenancies in England in Wales in April 2007. This wasn’t necessarily popular with all landlords then (or even now if truth be told) but it was intended to safeguard tenants’ deposits and provide a fairer system for settling disagreements about the return of any disputed at the end of a tenancy.

There are two types of government authorised schemes currently available:

–       Custodial; where the landlord or agent pays the deposit into the scheme, where it will be kept until the end of tenancy.

–       Insurance backed; where the landlord or agent holds onto the deposit but pays insurance premiums to the scheme. This means that the deposit is insured if there is any dispute, and the scheme will repay the tenant the agreed amount directly.

Personally, I use my|deposits for my tenancy deposits. This suits me because its flexible (I can use it around the clock), easy and straightforward. I can hold the deposit myself and am able to simply return it to the tenant at first opportunity at the end of the tenancy (providing all has gone well) which isn’t always so straightforward with the custodial scheme. But the custodial scheme has its merits too, especially if you don’t want the responsibility of holding onto potentially large sums of money for the duration of the tenancy.

Despite some teething problems, largely being addressed by new legislation from next month discussed in our earlier guest blog here, the three Government backed schemes have proved largely successful.

But there is still quite a lot of confusion about the status of deposits in general.

The key point which landlords often get wrong is that the deposit belongs to tenant. It never ceases to be the tenant’s money and should be returned unless the landlord can show that he or she has suffered a financial loss as a result of the tenant’s action or inaction.

This can be frustrating for landlords because as we all know it can be difficult to remain objective when carrying out an end of tenancy checkout – especially where there is obvious damage. This is why conducting a thorough and comprehensive inventory at the beginning of every tenancy is absolutely essential. Note down everything, take photographs, video if necessary and make sure that the tenant signs their agreement.

More landlords fall foul of the dispute resolution process because they cannot prove what condition a property was in before the tenancy began than for any other reason.

Should the need arise – where an agreement can’t be established over the amount of the deposit to be returned to the tenant – at the end of the tenancy all three schemes provide access to alternative dispute resolution (ADR) service gives landlord as well as tenants, the peace of mind.

Also – for all those landlords reading in Scotland, Tenancy deposit protection is coming soon! For information visit www.mydepositsscotland.co.uk for the latest news.

3 thoughts on “Deposits: Whose money is it anyway?

  1. In our experience, the Alternative Dispute Resolution (ADR) or the Independent Case Examiner (ICE), depending on which scheme you use, nearly always finds in favour of the tenant if there is not an inventory and condition report in the first place at the beginning of the tenancy, and a report at the end of the tenancy to compare it with.

  2. A word of warning about photographs. I made a claim for dirty marks on walls, dirty carpets and smears on paintwork all of which showed up clearly on photographs. The claim was dismissed because I took the photographs two days after the tenant had left although no-one had been in the property in those two days. The adjudicator stated that “anything could have happened in those two days”.

  3. I always take 6 weeks rent as a deposit just in case the tenant does not pay the last months rent I still have a few pounds to cover any losses or damages if needs be. In reality I avoid withholding money from deposits and I do everything I can to help my tenants to give my property back in reasonable condition. I always send copies of the inventory, photographs ( copies of which they signed at the start) and a list of costs that would be incurred if I had to carry our repairs, cleaning, rubbish removal or redecoration. I find that this really helps because it sets out my expectations clearly. Realistic expectations and good communication can help to avoid deposit disputes and rent lost while properties are brought back up to scratch – I even given them the paint and brushes if they want to touch up any marks. Its my ambition to give back 100% of my tenants deposits and I manage to achieve that most of the time.

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