Tenancy Deposits Explained

When renting a property, your agent will ask you to place a security deposit. Here, we will explain what the security deposit is and where your money goes.

By Raman Sandhu

It is a legal requirement that all tenancy deposits taken by landlords or agents in relation to Assured Shorthold Tenancies (ASTs) must be protected by a government-approved tenancy deposit scheme. This is relevant to deposits in both England and Wales. These deposits are the amounts of money paid to the landlord or agent to cover the tenant’s obligations during the tenancy. This doesn’t apply to holding deposits.

Here at Birdhouse Surrey, we place your money in the ‘mydeposits’ scheme. Once the deposit is received, it must be registered by the landlord or agent acting on behalf of the landlord, with a government-approved deposit protection scheme within 30 days. This is a legal requirement. If it is registered too late, the landlord is in breach of the legislation. This also means the tenant is within their rights to take them to court for not protecting their deposit correctly. This could result in a financial penalty of up to 3x the deposit amount.

There are two types of tenancy deposit protection schemes: 

  • Insuredscheme (where the agent or landlord hold the deposit) and
  • Custodialscheme (where the tenancy deposit protection scheme holds the deposit).

 

Serving Prescribed Information is another legal requirement and you must do that within 30 days of receiving the deposit. The Prescribed Information and the scheme leaflet must be served on all of the tenants and any relevant parties. Do not serve these before you’ve received the deposit. You may want to be efficient but if you serve this too early, it won’t be valid.

The Prescribed Information must be signed by the landlord or the agent on behalf of the landlord, and the tenant should be given the opportunity to sign it too. Ideally, you would get a copy of that signed version back for your audit trail.

Landlords need to be careful with what they agree to when granting consent to a tenant for making changes in the property. If you do give permission, be explicit with the details. For example, if a tenant asks to paint a room, rather than simply agreeing, you should specify the quality and professionalism of painting required, the colour range allowed, and how the landlord wants that room returned at the end of tenancy. If the landlord wants the wall(s) returned to their original condition at the end of tenancy, they must let tenants know when giving consent. It’s these extra little efforts in the admin that make the difference if a dispute arises and to avoid disputes in the first instance.

At the end of the tenancy, when you conduct the check-out and compare the details to the inventory/check-in report, you will see if changes have occurred. Some of those may be maintenance issues, some could be expected wear and tear and some may be caused by the tenant. Any changes which exceed fair wear and tear can form a claim for a deposit deduction.

In an Insured scheme, the tenant should have an explanation of what is being deducted from the deposit within ten days of them asking for it to be returned. Any undisputed deposit amounts should be returned to the tenant as soon as possible. Only the disputed amounts from the deposit should be retained while the deposit deductions are being negotiated or adjudicated.

Hopefully, you can resolve any issue with the landlord and tenant through communication. It’s worth noting that generally in an Insured scheme, any party to the tenancy can raise a dispute (agent, non-member landlord, or tenant). However, in a Custodial scheme only the agent or the lead tenant can raise a dispute. Once a dispute is raised you will need to provide evidence to support the claim. The burden of proof lies with the agent or landlord and this is where a good inventory/check-in report is essential. Keep those reports up to date with straightforward language and dated photographs.

Each case is unique and treated on its own merits. It comes down to the evidence provided that allows the adjudicator to make a decision.

Remember, before the government can adjudicate on a deposit dispute (in either scheme), we need to see evidence that the parties have tried to communicate to reach a resolution. We need to see that the tenant has disputed the proposals for any deductions.

If the deposit is protected by an Insured scheme, any balance that is not being disputed should be returned to the tenant within ten days.

If the deposit is protected by a Custodial scheme, it is held until either party requests that the funds are repaid. Either the member or the lead tenant can raise a repayment request. Non-member landlords, or landlords that use an agent to manage the deposit on their behalf, are not able to instigate this process.