Deposit protection

In 2007, the laws changed to ensure a safe and transparent way for landlords and tenants to have a successful rental partnership. Key among them was the obligation of a landlord to retain a tenant’s rental deposit in a government backed scheme.

The three main deposit schemes

My Deposit, Deposit Protection Scheme, and Tenancy Deposit Scheme. They are government backed and allow you to give them the full deposit, for free (called “custodial”). Alternatively, you may retain their deposit for a small fee (called “Insured”). If you elect to retain their deposit for the duration of the tenancy, you must not spend it. Typically, the contract with your tenant will state that any interest earnt on their deposit will not be returned to them.

Once your tenant has given you their deposit, you have up to 30 days to lodge it with one of the approved schemes, and provide your tenant with the prescribed information. This is typically the reference number, and scheme information. The scheme will give you all the necessary information, and you simply have to pass this on to your tenant. If you do not lodge the deposit within 30 days, you are liable for a penalty of up to 3 times the deposit amount.

There are alternatives for your tenant. It may not be financially feasible for them to give up that much money, in addition to paying for their first month’s rent and other moving in costs. Even more applicable, when moving between rental properties they may not have the first deposit returned before the second one is required.

For a small fee (normally around 1 weeks rent), there are companies that will provide a Deposit Guarantee (such as Zero Deposit, FlatFair, Reposit). So on a £901 monthly rental, you would normally require a deposit of £1040 (the UK avg). Instead, your tenant would give one of these companies approximately £208 and they would provide you, the landlord, with a Deposit Guarantee certificate. At the end of the tenancy, the tenant is still liable for any and all costs associated with a tenancy deposit. If they do not pay for damages or rent arrears, the Deposit Guarantee companies will pay you, and recover the money from your tenant. It is not mandatory for you to accept a deposit scheme alternative, but in doing so you will be limiting the number of tenants able to rent your property. These schemes are nationally recognised, and a great number of letting agents have partnered with them so they are a tried and tested way of allowing tenants to begin their tenancy with you.

What does their deposit cover?

At the end of the tenancy, once the tenant requests their deposit back you have 10 days to return their full deposit or confirm if you are requesting a deduction. Your tenant may accept or question the amount you are choosing to deduct. If you do not come to an agreement, they may take it to an adjudication process, normally managed by the scheme with which you have lodged the deposit.

You may request deductions for any missing or damaged items from the inventory that your tenant signed when they moved in. Typically, the tenant must return the property in the same condition in which it was received (with allowances for wear and tear).

Nearly half of all deposit deductions are caused by poor cleaning by the outgoing tenants. Be sure to be clear at the beginning of the tenancy the standard to which cleaning at the end is expected. It helps to take photos when they move in, so you may compare.