A deposit is money tenants give to you in case something goes wrong during the tenancy. You must protect this money during the whole tenancy.
How to deal with a new deposit
You should protect the deposit as soon as you can. The council can fine you if you don't protect the deposit within 14 days of getting it.
- give the deposit to a deposit scheme to hold (the custodial option), or
- pay a deposit scheme to insure the deposit (the insurance option).
You must give the tenant information about their deposit within 28 days of them paying the money.
You will need to update the protection if the tenancy details change or if you extend the tenancy. You will also need to renew the protection if you ask the tenant to top-up the deposit later on .
Who "owns" the deposit?
Although you are holding the deposit, the money belongs to the tenant. At the end of the tenancy, you return this money to the tenant.
You can use the deposit to cover certain losses if the tenant broke the tenancy agreement. But, you have to produce evidence to show that you have a right to keep any of the deposit.
Giving tenants their deposits back
You must give the tenants their deposit back when they move out.
You may be able to keep some of the deposit, if you can prove that the tenants owe you money for rent, damages or cleaning.
You'll need to explain what charges you've made on the deposit and show that you have a right to make these charges.
What costs can be deducted from a tenant's deposit?
Your tenancy agreement should detail the types of costs you can take from the deposit. Common costs include
- any rent the tenant owes
- reasonable deductions to compensate you for damage to the property or furniture
- reasonable cleaning costs if the property is less clean at check out than it was when the tenants moved in
- any outstanding utility bills.
Working out how much to deduct from the deposit
Your deductions have to be reasonable. You need to consider
- is an item damaged through misuse/neglect or through normal wear and tear?
- can you repair the item or does it have to be replaced?
- if replacing an item, what is the proportionate value of the damaged item?
Wear and tear
You must allow a certain amount of wear and tear on items. The amount of wear and tear to expect depends on
- the quality of the damaged item
- the age of the damaged item
- the length of the tenancy
- the location of the damaged item.
Consider the example below.
Your tenants move out after 6 years. You had installed a new stair carpet 10 years ago. It was a low quality item and the salesperson said you should expect to replace it in 8 years. It was showing slight signs of wear when the tenants moved in, but is now lifting on multiple steps and is threadbare in places. You cannot charge the tenants for a replacement or repair. This is normal wear and tear.
Repair or replace
You may decide to replace a damaged item with something new. But, if it was possible to repair the item you should only charge the tenants the cost of the repair work. Consider the example below.
Your tenants ripped the hem on a pair of curtains. The curtains are old and you decide to buy new ones. You can only charge the tenants a reasonable fee for sewing the hem. You cannot charge them the full cost of new curtains.
The proportionate value of a replacement
Deductions for replacement items must be on a like for like basis.
This means your charge should reflect the cost of buying the same item as was damaged. Consider the example below.
Your tenants damage a 6 year old economy washing machine that cost £240. Which? magazine suggests this machine should last for 8 years. You decide to buy a £400 machine for the new tenants. You can only charge the old tenants £60 - the equivalent of the remaining two years of life on the old machine.
What happens if the tenants don't agree with your deductions
The tenants can ask the deposit scheme to look at any deductions they disagree with.
The deposit scheme will ask you for evidence to prove you have a right to make these charges. This can include
- photographs at the start and end of the tenancy
- check in and check out inventories
- bills or receipts to prove cleaning or other charges.
The burden of proof is on you. The deposit scheme will return the money to the tenant if you cannot supply evidence to prove your claim.
Going to court about deposits
Your tenants may take you to court if they disagree with the deductions and
- you did not protect the deposit, or
- you did not renew the deposit protection, or
- they have a counterclaim against you, or
- they left the tenancy early.
The court takes the position that the deposit is the tenants' money. You have to prove that you have a right to keep any of it. You will need evidence to prove your claim.
You may take the tenant to court if they owe you more than the value of the deposit. You may be able to take the tenants' guarantor to court instead or, or as well as, the tenant.
The Small Claims Court deals with cases valued at £5000 or less.