WHAT IS A SECURITY DEPOSIT?
A security deposit is money that’s paid by a tenant to secure the use of property. A security deposit provides landlords with a financial commitment at the start of the lease. This protects the landlord from issues such as non-payment of rent, court fees, or damage to the property. The landlord can keep the deposit to cover any financial losses or damage they incur during the tenancy.
HOW MUCH CAN A LANDLORD CHARGE FOR A SECURITY DEPOSIT?
The Tenant Fees Act, set out in 2019, restricts the deposit taken for residential tenancies to five weeks of rent. This increases to 6 weeks if rent exceeds £50,000 per annum. When you renew an existing tenancy, the deposit should still not exceed 5 weeks, with any excess refunded to the tenant.
Where there is a joint tenancy, the cap relates to the total weekly rent for the tenancy. A landlord cannot ask for a tenancy deposit equivalent to five or six weeks’ rent from each of the joint tenants.
Tenancies that fall outside the tenant fees act?
The deposit cap set out in the Tenant Fee Act does not apply for the following tenancies:
- The tenant or licencee signed the tenancy or licence agreement before June 1, 2019.
- A statutory periodic tenancy arises during the year after June 1, 2019.
- If the tenancy is under the protection of the Rent Act of 1977, This act mostly prohibits deposits.
- A common-law tenancy is simply a contractual agreement between landlord and tenant with few statutory provisions. The deposit is a negotiable aspect that is mutually agreed upon between both parties.
- Holiday or business lettings will not be protected by Tenancy Deposit Protection.
PRE-TENANCY SECURITY DEPOSIT OPTIONS
It’s common practice for tenants to provide a deposit to the landlord for a tenancy. Other options are available, such as a deposit replacement guarantee product or a guarantor who will guarantee the deposit. Where there is a joint tenancy, the cap relates to the total weekly rent for the tenancy. A landlord cannot ask for a tenancy deposit equivalent to five or six weeks’ rent from each of the joint tenants.
The deposit for a tenancy must be registered with the Tenancy Deposit Scheme (TDS). The landlord needs to furnish the tenant with the TDS information notice as proof of registration.
Collection of the first rent and the security deposit
The tenancy agreement will specify the agreed-upon monthly rental and the tenant’s deposit. Before the keys have been handed over and the tenancy starts, the tenant is required to pay the first month’s rent and the deposit.
Inventory/check in/out procedure and cleaning
By having a schedule of conditions and contents, it provides a documented reference point from the start of the tenancy. This provides vital evidence in the event that the tenant has caused any damage or removed any items from the property. For that reason, it is best to employ a professional inventory clerk for the job. Without a credible inventory, it is commonly difficult to make any court claim against the tenant for damage or theft.
Furthermore, the landlord’s attempt to claim against the tenant deposit may be rejected. However, one aspect to note is that the inventory does not include the testing of appliances or the central heating system.
Prior to the commencement of a new tenancy, if the property is professionally cleaned, this can be noted in the schedule of condition. Without note, it is increasingly difficult to make any claim against a tenant’s deposit for cleaning at the end of a tenancy. The best practice would be to attach the invoice for the pre-tenancy cleaning to the inventory. This is setting the standard of cleanliness for the property on the termination of the tenancy, subject of course to wear and tear.
RULES FOR SECUIRTY DEPOSITS DURING A TENANCY
Throughout the tenancy, the deposit is in an interest-free client account.
HOW TO HANDLE SECURITY DEPOSITS AT THE END OF THE TENANCY
When an assured shorthold tenancy (AST) finishes, which is soon to be periodic tenancies, an inspection should take place. Through inspection, if you find maintenance work needed to bring the property back to its pre-tenancy condition. This maintenance work excludes items that are the result of fair wear and tear. The landlord must obtain a quote for any maintenance work they wish to retain from the deposit.
Where there is no dispute about the deposit at the end of the tenancy
If there is no dispute over the maintenance issues and the price quoted to deduct from the deposit. The landlord holds the amount for the work, and the tenant receives the balance of the deposit.
Where there is a dispute about the deposit at the end of the tenancy
You must use reasonable efforts to reach a mutually beneficial resolution to the dispute after the tenancy ends. If there is no resolution, the landlord must release the part of the deposit that is outside the dispute. The TDS rules require deposit repayment within 30 days from the end of the tenancy. If not, then the tenant can notify the TDS that a dispute has arisen.
The TDS will review the tenant’s claim and decide whether independent alternative dispute resolution (ADR) is suitable. Usually, this will take the form of adjudication or assisted negotiation or mediation. ADR is the first option to settle the situation without having to proceed with time-consuming and costly court proceedings. The TDS does not charge landlords or tenants for using the ADR service if it relates to an AST or periodic tenancy.
If a tenant does not agree to the deposit deductions, although they did not raise a dispute with TDS. The landlord will need to commence court proceedings to continue pursuing the deduction. The deposit remains in place until a decision is final. If both parties agree to adjudication, there is no right of appeal, and the decision made is final. When the decision is final, whether that’s the adjudicator’s decision, a court order, or an agreement between the parties. The winning party must receive the amount that was in dispute within 10 days.
TIME LIMIT FOR SUBMITTING A SECURITY DESPOSIT DISPUTE TO ADR
There is a time limit of 3 months from the end of the tenancy to send a dispute to the TDS for ADR. If no claim for ADR is present during the 3-month timeframe. The parties will need to negotiate or use some other means to reach a settlement.
SUMMARY
This article walks you through the lifecycle of a residential tenancy and its alignment with the security deposit. The introduction of the Tenants’ Fees Act has regulated the process and set timelines for resolving disputes.
