A tenant’s deposit is hugely important to you as a landlord.
It adds a crucial layer of financial protection against damage to your buy-to-let property.
But it’s also equally important to your tenant.
And with that in mind, rules around tenancy deposits changed back in 2007.
Since then, all tenancy deposits need to be placed in one of three government-backed deposit protection schemes.
And the money needs to be lodged within 30 days.
Let’s look in more detail at the schemes themselves, the rules around tenancy deposits and the penalties for landlords who fall foul of the regulations.
Landlords’ deposit protection schemes
The three deposit protection schemes for landlords are:
Your tenant’s deposit can be placed in any of the three schemes and there are few differences between the three now.
The schemes offer two main ways of lodging your deposit – custodial or insured.
The custodial option sees you hand over your tenant’s deposit to the scheme provider and, often, there is no charge involved.
The insured option sees you keep the tenant’s deposit in your own account, thus benefiting from any interest, but you pay a small fee to the scheme provider for their protection of the money.
Timeframes for securing your tenant’s deposit
You must lodge your tenant’s deposit, in full, with one of the three scheme providers within 30 days of receiving it and inform your tenant where it has been lodged.
Once the tenancy is over, you have 10 days to return your tenant’s deposit to them once the amount to be refunded is agreed.
If you can’t agree a figure with your tenant, the money remains under the scheme’s protection until a resolution is found.
Deposit protection scheme disputes
While much of deposition protection regulation is in place to help tenants, there are also benefits for landlords.
One major benefit is the use of the deposit scheme’s resolution service should you end up in a dispute with your tenant regarding their deposit.
Of course, you would never wish to end up in a dispute – it’s costly and time-consuming.
But often the schemes’ resolution services can help reach an agreement quicker, so make use of them if you need to.
Penalties for failing to lodge a deposit in a scheme
Failure to lodge your tenant’s deposit into one of the three schemes within 30 days means your tenant can take you to court.
That could see you have to pay the deposit into a scheme, or repay it to your tenants and pay them between one and three times the deposit amount as compensation.
Moreover, you can’t use a section 21 eviction notice unless you have lodged the deposit into one of the three schemes within the 30-day timeframe.
Deposit deductions you can make
Firstly, you must clearly state to your tenant how much of the deposit you wish to deduct and why.
You can only make the deduction once the tenant has agreed or when there has been a resolution in the event of a dispute.
Legitimate deductions could include:
- Unpaid rent
- Theft of items
- Damage to property or fixtures and fittings
- Poor hygiene or sanitation use
- Breaching maintenance terms
- Disposal of items left behind
Fair wear and tear
Depending on the length of your tenant’s tenancy and the number of people living in the property, there will almost certainly be issues to rectify before a new tenancy commences.
But can you charge for scuffs, worn carpets, or discolouration to fabric?
Generally, the answer is ‘no’ as all of the above would almost certainly be classed as fair wear and tear.
However, damage to kitchen worktops, for instance, could fall under ‘damage’ if your tenant has been chopping without a board.
The importance of inventories
Disputes with tenants over deposit deductions can generally be resolved quickly with hard evidence.
And that means having a comprehensive and accurate inventory performed when your tenant moves in and when they move out.
If evidence of damage is clear to see through accurate photos, it’s unlikely your tenant would be able to dispute a fair deduction for repairs or replacement.
If you have any questions about registering your tenants' deposits, get in touch with your local Martin & Co office who can talk to you about their fully managed service.