Landlords will generally request a deposit at the start of a lease, which will be the equivalent of one- or two months’ rent. The purpose of the deposit is to give landlords a safety net when something goes wrong with the tenancy, for example, if the tenant damages the property or leaves it in a poor state of repairs. Where there are no issues, the tenant requests that the deposit is returned to them at the end of the lease. Since 6th April 2007, landlords have been legally required to protect any deposits paid by their tenant into a government-authorised tenancy deposit protection scheme within 30 days of receiving it. The default residential tenancy is the assured shorthold tenancy, and any deposit received for this type of tenancy automatically falls under the tenancy deposit scheme requirement.

Obligations under the schemes

Under the deposit protection scheme, the landlord has various obligations. The purpose of the scheme is to ensure that the tenant is protected and that they receive their deposit back at the end of the lease so long as they meet all the terms of the lease agreement and no damage is done to the property they are renting.

Landlords have a choice of schemes that they can use in England and Wales, which are the Deposit Protection Service, MyDeposits and the Tenancy Deposit Scheme. Once the deposit is placed in a scheme, the landlord will receive a tenancy deposit certificate, and they must provide a copy of this to the tenant. The landlord needs to relay certain information to the tenant during the 30 days from when they receive the deposit. This includes giving the tenant the Tenant Prescribed Information within the statutory time limit, which includes the particulars of the scheme, the grounds by which the deposit can be withheld from the tenant and what the relevant dispute resolution mechanism is.

The landlord must return the deposit at the end of the tenancy within 10 days of the landlord and tenant agreeing the amount that should be returned.

Where the landlord does not protect the deposit within the relevant 30-day period, the tenant will be able to claim compensation via the Courts since the landlord will have breached the rules of the tenancy deposit protection rules. The Courts can order:

• Payment to the tenant that is three times the value of the deposit. The amount will depend on the individual circumstances of each case.
• Professional landlords or landlords using a letting agent that should be aware of the law are more likely to face harsher penalties.
• Protection of the deposit within 14 days.
• That the deposit is returned to the tenant.

Failure to protect a deposit also affects the rights of the landlord in relation to being able to evict the tenant under Section 21 of the Housing Act.

There are two types of deposit schemes that a landlord can use:

• The custodial scheme, which is the one most commonly used, where the landlord transfers the entire deposit into the scheme for safekeeping. This type of scheme does not cost the landlord anything.
• The insurance-based scheme, under which the landlord retains the deposit but is not able to use the money since it legally still belongs to the tenant. The landlord then pays the deposit scheme a premium in order to offer protection. The fees range in price depending on the company used.

In what circumstances can deductions be made?

At the end of the tenancy, the tenant must request their deposit is returned. The landlord then must reply to the tenant and state at this point if they wish to make any deductions. The reasons that are justified for this include:

• The tenant failing to pay all rent due by the end of the tenancy. Where the amount outstanding is more than the deposit, the landlord will need to use the courts to recover the relevant amounts.
• The tenant failing to pay all bills by the end of the tenancy.
• Items belonging to the landlord missing from the property.
• Damage to the property or contents (both direct or indirect due to failure to maintain the property correctly). Content that has been damaged must be repaired or replaced by the tenant. However, ordinary wear and tear is not something that the landlord can make deductions for.
• Where the premises are not left in a suitable condition, then the landlord can make suitable deductions for cleaning costs.
• In some cases, lack of maintenance of other facilities, such as any garden or outside areas.
• Belongings of the tenant being left at the property after keys returned.
• Lack of hygiene.
• Evidence of pets or smoking where this has not been permitted.

The landlord should ensure there is a detailed inventory and photographic evidence of the property at the start of the lease in order for the check-out report to be compared with this.

The landlord’s deductions can be approved where the tenant agrees, following dispute resolution or following a court order. The landlord cannot retain the deposit without giving clear reasons for doing so.

How are disputes resolved?

Each of the tenancy deposit schemes offers an alternative dispute resolution service, which is a free, independent adjudication when the tenancy ends. Where there is a disagreement over the amount of deductions, this can be a useful service. The adjudicator will be presented evidence from both sides (the landlord should present photographic evidence and inventories to show the condition of the property at the beginning and end of the tenancy). Both parties must agree to use this service to resolve the issue and the decision given is final. Any challenges would have to be done through the courts.

Contact our Property Litigation Solicitors in Mayfair and throughout London

The implications for improper handling of a tenant’s deposit can be significant for a landlord, and it is important to consult with a specialist property lawyer at the outset of the lease agreement to ensure that all legal requirements are satisfied.

At Lewis Nedas, we provide a service that reflects the range and complexity of property law disputes. Our team of expert lawyers will be able to handle all aspects of property litigation, whether commercial or residential. We have successfully advised clients with highly complex and multi-faceted cases. If you have questions regarding property law, or are perhaps facing a dispute which you need help to deal with, please contact us on 020 7387 2032 orcomplete our online enquiry form.