A Guide to Tenancy Deposits

Taking tenancy deposits from tenants is optional for landlords, nevertheless, it is broadly the done thing and strongly advised that you make it part of the tenancy agreement you put to your tenants. However, putting tenancy deposits in a government-authorised tenancy deposit scheme isn’t optional, it is something that you must do by law. 

Deposits act as your financial safety net as a landlord, and should any issues arise at the end of a tenancy then they can be used to offset costs. Here, we at CIA Landlords go a bit more depth in this guide to tenancy deposits.

Deductions

Fair wear and tear of a property can include things like worn carpets, faded curtains and minor scrapes and scuffs on the walls. In reality, you won’t receive your property back in the pristine condition you handed it over to tenants in – and that’s okay. It’s important to remember that the property has been lived in. 

However, should you come across damage such as burn holes in the carpet, nail varnish spills, damaged paintwork, or torn curtains, you can deduct the cost of these repairs from your tenant’s deposit.

Avoid disputes

To help avoid disputes around tenancy deposits, set out what you will deduct money for in the tenancy agreement. We also recommend keeping a detailed inventory of the house when tenants move in, and going through this again when they leave.

If you intend on claiming costs from the deposit, keep invoices for any work done to the property or items you’ve purchased. 

Lastly, only replace items on a like-for-like basis. For example, if your tenant damages the fridge that you provided, you cannot replace it with a better quality, more expensive fridge and expect them to cover the extra cost. Keep communication open and let the tenant know the details of any deductions and return any leftover deposit as soon as possible.

Tenancy deposit schemes

It’s important to know that by law, you cannot keep tenancy deposits your personal savings accounts. When you take a deposit for an assured shorthold tenancy, you must put it into a government-authorised tenancy deposit scheme within 30 days of receipt. Failure to do so could result in a tenant bringing a claim against you for up to three times the deposit’s sum! 

Tenancy deposit schemes ensure that tenants can get their deposit back, as long as they follow the terms of the tenancy agreement, avoid damaging the property and pay all of their rent and bills. It also means that if a dispute between the landlord and tenant arises, the tenancy deposit will be protected until it is resolved.

Deposits are not something for you to take lightly. A landlord who fails to correctly protect a deposit cannot serve a notice to end the tenancy and regain possession under section 21 of the Housing Act 1988. You can only do this after the deposit has been repaid or after any court case about deposit disputes has ended.

Section 21 will probably soon be abolished in the proposed renters’ reform bill and replaced by extended legitimate grounds for landlord possession under Section 8.

Which tenancy deposit scheme?

There are three different government-approved tenancy deposit schemes, and which one you decide to use is up to you

• Deposit Protection Service
• My Deposits 
• Tenancy Deposit Scheme. 

Let your tenant know within 30 days about the scheme you have chosen to protect their deposit and how it will be managed. Again, you could incur penalties if you fail to do this. As long as you are upfront and clear with your tenant regarding their deposit and the tenancy agreement, it should be a straightforward process.

To ensure you stay protected at all times as a landlord, you can’t do without landlord insurance. A landlord insurance policy can cover events such as fire, water damage, storm damage, electrical damage, theft, malicious damage, and loss of rent. With CIA Landlords, you can compare landlord insurance to find the best quote to meet your needs. Call us on 01788 818 670 or get a quote from the affordable, reliable providers we work with at CIA.