Can You Keep Your Tenant’s Deposit? | Advice For Landlords

• Commercial Property

As per tenancy deposit legislation introduced in 2007, landlords are obliged to protect any deposit they take from tenants. This legislation has meant that billions of pounds of tenant deposits have been protected by three government-approved schemes, but this is not to say that landlords do not have rights and options should they wish to claim the deposit at the end of the tenancy. 

A Landlord asking themself  ‘can I keep my tenants deposit?’ should be aware that the deposit is tenants money. Whether or not a landlord can seek any deduction  will depend on the specific circumstances. However, there are some important considerations and principles that should be applied in all cases. Landlords should always familiarise themselves with the relevant laws and rules and make the most of resources provided directly by the providers of the government-approved tenancy deposit schemes. For example, the Tenancy Deposit Scheme offers a helpline and very helpful guides for both landlords and tenants. 

Taking a deposit from a tenant

When taking a deposit, landlords must protect it within a certain timeframe. If the deposit was paid on or before 5th April 2012, the deposit must be protected within 14 days of receipt. If the deposit was paid after 6th April 2012, the landlord has 30 days to protect the deposit. The tenant must also be provided with the prescribed information within 30 days of receipt of the deposit. 

Landlords will face sanctions if they do not comply with these rules. These can include possible claims for compensation from the tenant and complications if the landlord wishes to serve a Section 21 notice. 

Whose money is the deposit?

The guiding principle is that the deposit is regarded as the tenant’s money. It should be returned to the tenant at the end of the tenancy if they have honoured the terms of the tenancy agreement. However, there are circumstances in which the landlord may wish to claim for some or all of the tenants’ deposit.

If you believe you have grounds to make a claim for a tenant’s deposit, you should always speak to a legal expert. Based in Plymouth, our landlord and tenant team can advise on whether you have grounds for a claim and help you with your next steps as a landlord.

Avoiding a deposit dispute

Deposit disputes are often over small sums but can cost significant time and money. Therefore, it is advisable to avoid disputes where possible and take measures early on to mitigate or resolve any disagreement. Early communication is key. For example, a letter from the landlord that reminds the tenant of their obligations under the tenancy and sets out any possible deductions as the end of the tenancy approaches will hopefully lead to an agreed deduction. 

The landlord should invite the tenant(s) to attend the ‘check-out’ process when the tenancy comes to an end and they leave the property. Comments made by the tenant should be noted if they disagree with anything and the landlord should refer to these comments when responding about possible deductions.

Disputes can also be avoided by both parties having a realistic expectation about what condition the property should be returned in at the end of the tenancy. The most common causes of deposit disputes are cleaning charges and wear and tear.

In the event of a deposit dispute

If a tenant is unhappy about deductions, they are entitled to raise their dispute with the relevant tenancy deposit protection scheme. The procedures differ slightly depending on the scheme but all three schemes follow the principles of ADR (alternative dispute resolution).

The parties in dispute are required to submit their evidence to the adjudicator within specified timescales laid down by the individual deposit protection scheme. 

If the deposit is protected by an insurance-based scheme, the landlord should return to the tenant any portion of the deposit that is not subject to a dispute, immediately. 

In the case where the deposit is held by the custodial scheme the landlord must refer to their procedures for releasing undisputed amounts.

To bring a claim parties must:

• Submit evidence to the adjudicator
• Send it to the scheme within the specified timescales

Burden of proof

The tenant has no obligation to prove their argument because the deposit remains their property until successfully claimed for by the landlord. As a landlord, you must prove that you have, on the ‘balance of probability’, a legitimate claim to retain all or part of the deposit. If this cannot be proven, the adjudicator must return the disputed amount to the tenant. 

What does an adjudicator look for?

When reviewing a deposit dispute claim, the adjudicator will look for specific information. Involved parties can download the Tenant Deposit Scheme guide titled ‘How To Present Your Case To An Adjudicator’ for more information. 

The adjudicator will review the following questions in order to review the case in question:

• What is this part of the claim for? This can be broken down into one of six categories: cleaning, damage, redecoration, gardening, rent arrears, other.
• What are the tenant’s obligations as set out in the tenancy agreement and under the general law?
• Did the tenant fail to meet those obligations? 
• If so, what loss did this cause to the landlord and/or agent? Fair wear and tear should always be allowed for when assessing the level of loss.
• What evidence has been provided by the landlord and/or agent to quantify the loss?

The adjudicator can only work with the information submitted and will not contact landlords or tenants directly to ask for any additional evidence or missing information. If a submission is made which is not supported by evidence, the adjudicator can disregard the claim and the landlord will have to return the deposit to the tenant.

The adjudicator needs to know what the claim is about and how much is being claimed. They will find this information in the Dispute Application and the Dispute Response submitted by the landlord and the tenant respectively. It is worth taking time to complete these properly, so that the adjudicator is not in any doubt about what the claim is for. 

What evidence can landlords use to support a claim?

The evidence needed to support a claim will vary on a case-by-case basis and the adjudicator will always consider a claim on its own merits. However, there are a number of different types of evidence that landlords can typically look towards to support their claim, including:

1. The tenancy agreement
2. Inventory reports & check-in/check-out inspections – these inspections should preferably be carried out by independent companies or individuals to avoid bias.
3. Photographic/video evidence – such as before and after photos with a clear narrative.
4. Invoices/receipts/estimates/quotations – to illustrate any costs incurred in respect of repair or replacement work being carried out. This evidence should be fully itemised.
5. Cleaning charges – landlords need to record the cleanliness of the property in detail at the start and end of the tenancy. Standard charges are often considered unreasonable by an adjudicator unless specifically explained and agreed with the tenant in writing at the start of the tenancy.
6. Standard agency charges – landlords should note the deposit should only be retained for breaches of the tenancy agreement causing a financial loss and not a failure to pay standard agency fees.
7. Utility bills/council tax – if these bills are unpaid at the end of the tenancy, the adjudicator is likely to take the view that the liability for the outstanding accounts is between the tenant and the local authority/utility provider. Unless the landlord can show that the bills were not transferred into the tenant’s name, or that the landlord has been required to pay any outstanding accounts, the adjudicator is unlikely to make an award to the landlord.
8. Witness statements/other evidence – the adjudicator will not contact potential witnesses to obtain further evidence. The adjudicator will not cross-examine witnesses or take evidence under oath.
9. Wear and tear – defined as ‘reasonable use of the premises by the tenant and the ordinary operation of natural forces’ by The House of Lords.

What is reasonable wear and tear?

Wear and tear is one of the most contentious grounds for claiming part or all of the tenants’ deposit. The word ‘reasonable’ can be interpreted differently, depending on the type of property and who occupies it. In addition, a landlord is not entitled to charge tenants the full cost for having any part of his property, or any fixture or fitting, put back to the condition it was at the start of the tenancy. 

For example:

• Replacement of a damaged item may be justified where it is either severely and extensively damaged beyond economic repair or, its condition makes it unusable.;
• Repair or cleaning is a more likely award where replacement cannot be justified; 
• In cases where an item has had its value reduced or its lifespan shortened, for example by damage, an award of compensation may be appropriate.

The landlord should not end up, either financially or materially, in a better position than they were at the start of the tenancy, or than they would have otherwise been at the end of the tenancy after having allowed for fair wear and tear. Any award for damage must consider fair wear and tear.

Adjudicators will consider the following factors when coming to a decision about wear and tear:

• Length of tenancy – the longer the tenancy, the more natural wear.
• Number and age of occupiers – the more bedrooms and occupants, the higher the wear and tear that should be expected.
• Damage i.e. breaking something is not wear and tear – meaning either replacement or repair. 
• The original quality of the item at the start of the tenancy and what it originally cost to provide. 

In considering whether cleaning/repair is necessary versus complete replacement at the end of the tenancy, an adjudicator will examine the check-in/out reports, any statements of condition and any photos/videos to compare the condition of the property at the start and end of the tenancy

In the rare circumstances where damage is so extensive or severe as to affect the achievable rent level or market quality of the property, the most appropriate remedy might be replacement and to apportion costs according to the age and useful lifespan of the item.

Examples of circumstances where a landlord may be able to deduct in this way include:

• Unpaid rent 
• Tenants leaving without notice 
• Unpaid bills if it has cost the landlord money
• Redecoration and painting charges if the tenant:
  • Redecorates or makes significant changes such as changing locks, meters, flooring, furniture or appliances without the landlord’s consent.
  • Causes damage so that redecoration is needed before a new tenant moves in. Examples include holes in walls or doors, stained or burned carpets, broken furniture or household items and condensation damage caused by the tenant.

What happens when a decision is made?

Because participation in the ADR process requires consent by both parties, the final decision of the adjudicator is binding on both the landlord and tenant. It cannot be challenged except through a Court of Law. 

Our landlord and tenant specialist has considerable  experience assisting landlords and can work quickly and efficiently to seek an appropriate solution. Don’t hesitate to call us on 01752 203500 or email me directly neale.crump@GAsolicitors.com.

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