Why you must protect tenancy deposits
Before a tenant moves into your property, you may ask them to pay a deposit. This deposit serves as a security measure against potential damages or unpaid bills during the tenancy.
Because it’s the tenants’ money, this deposit must be handled with care and transparency. There is legislation in place to ensure that tenants’ money is safeguarded and that landlords cannot unfairly withhold deposits.
Protecting the deposit
Since April 6, 2007, for assured shorthold tenancies, you are legally required to protect the deposit using a government-approved deposit protection scheme. You can use any of the following schemes:
You must choose one of these schemes to protect your tenant’s deposit. Each scheme offers its own set of features and benefits, so it’s important to research and select the one that best suits your circumstances.
Additionally, from June 1 2019, there are limitations on the amount you can request as a tenancy deposit:
- For properties with an annual rent below £50,000, the deposit is capped at five weeks’ rent.
- For properties with an annual rent of £50,000 or higher, the deposit is capped at six weeks’ rent.
As a landlord, you (or your agent) must protect the deposit in one of the approved schemes within 30 calendar days from the day you receive it. You are also required to provide the tenant with prescribed information detailing how their deposit has been protected within the same 30-day period.
Failing to meet these obligations can have serious consequences. The tenant has the legal right to take you to court, where you may be liable to pay them between one and three times the amount of the deposit.
Furthermore, if you do not follow the rules, you cannot use a Section 21 notice to regain possession of the property unless you first refund the deposit.
Returning the deposit
It is important for landlords to return the deposit as soon as possible after the tenancy has officially ended. If you are seeking to make deductions from the deposit at the end of the tenancy, it is important to follow the instructions of the scheme you have used to protect the deposit. You can only withhold a portion of the deposit for valid reasons, such as property damage beyond reasonable wear and tear, furnishing costs, or cleaning expenses to return the property to its original condition.
The original inventory at check-in compared to the closing inventory at check-out will be key evidence needed for deductions you plan to make. You may wish to consider getting professional inventories carried out as these are helpful in the event of a deposit dispute.
If deductions are to be made, attempt to reach an agreement with the tenant regarding any deductions.
Return the tenancy deposit promptly based on the protection scheme you’ve chosen. If it’s an insurance-backed scheme, you must return it within 10 days of reaching an agreement with the tenant on deductions. For custodial schemes, respond promptly to any requests from the scheme to facilitate the deposit’s return.
If a dispute arises over the amount withheld from the deposit, the tenant has the option to raise a dispute with the relevant deposit protection scheme. It’s advised that you familiarise yourself with the dispute resolution process specific to your chosen scheme.
