Getting deposits right.
So, imagine the property you have so proudly been renting out for years comes back to you in a terrible state. You try to keep the tenant’s deposit to cover repairs, but end up having to repay all the deposit to the tenant, and get a fine on top for not registering the deposit correctly…
I’m glad you’re still here. The fact that you’ve read all the advice so far, and stuck with me shows that you’re going to be a good landlord! It’s easy to get bored with this stuff, or think that it won’t ever apply to you. So often I hear people tell me that they have a friend who has been renting for years, with great tenants and no problems. That’s fantastic, and that experience is what letting agents like my team and I are here to help provide.
But my team and I see far more tenants, homes and landlords than most people, and we know that sometimes, despite all best efforts, disputes do arise, often at the end of a tenancy. The landlord feels like the tenant has not returned the property in good condition, and seeks to retain all or part of the deposit. The tenant on the other hand, feels like they have done nothing wrong, and demands their deposit back. So who should get that money?
Do you remember, right back in my second blog post (I’ve Bought My First Investment Property – Now What?), I mentioned the need for a proper inventory? The exact phrase I used was “you need an inventory, and I’m not joking; if you skip this step then you are in a world of hurt”. Well I stand by those words, and this week I’m going to break it down for you in a little more detail.
Landlords are legally obliged to place any deposit held in a government-backed Tenancy Deposit Scheme for any tenant on an assured shorthold tenancy that commenced after 6 April 2007. There are three acceptable schemes in England and Wales:
MyDeposits - including deposits that were held by Capita
All eligible deposits must be registered within 30 days of the landlord receiving funds, and must be repaid within 10 days of both parties agreeing the sum to be returned. If a landlord or agent fails to put the deposit in one of the schemes then they may be liable for a fine of up to three times the original deposit plus the deposit.
Most of the time, the full deposit gets returned – but if the tenant and landlord are unable to agree, a free dispute resolution service (often referred to as the ombudsman), can look at evidence from both parties and make a binding judgement on the amount to be repaid to each party. This is where it can get very messy if you don’t have a proper inventory.
Let’s say you make your own inventory up. You go around each room, describe each wall as white, carpets as being in good condition, and windows as unbroken. At the end of the tenancy, your carpets are patchy, walls grubby and scratched, and the lock on the window has been snapped. The tenant claims that this is how the home was handed to her, and you decide to go to the dispute resolution service.
They will look at your inventory and say that the walls in the house are still white, and you have no evidence to say they were not grubby and scratched white before. Carpets in “good condition” are highly subjective, and without photos, purchase receipts or other evidence this will be dismissed, and likely written up as fair wear and tear. As for the window lock, you didn’t mention it at all – your inventory simply said the window was not broken, and indeed the glass is still intact. The full deposit will probably be awarded to the tenant. You may think that is unfair, or that that you could convince them otherwise, but after years of taking claims to the panel, both Jasmine and I can tell you that the burden of proof is firmly against the landlord.
If you had a proper inventory drawn up, one of my team would spend between 2-4 hours at your property, describing and photographing every inch of the home, then get it signed at move in by the tenant so that you can prove if needed exactly what the tenant took possession of. That is a very wise insurance policy to have.
The other thing I need to mention is “fair wear and tear”. Probably the most misunderstood term in the whole industry, and the cause of most deposit disputes. The two main points here are that:
- the tenant has a duty to return the property in it’s original condition, with allowance for fair wear and tear.
- The law does not permit betterment (or new for old) when assessing any repairs needed at move out.
So, if you fit a new carpet in the hallway, with a 10 year guarantee. The tenant stays for 5 years, so you should expect that there will be some signs of wear and aging. The tenant has behaved “in a tenant-like manner”, which is not a very helpful phrase I know, but is generally taken to mean that they did what any reasonable tenant would do. In this case they walked on the carpet. If you knew it was a family moving in, you might expect slightly more wear than a single professional occupant, and so on.
But let’s say the carpet has some damage, perhaps some cigarette burns. You would not be allowed to claim the full amount to replace the carpet, because this would be betterment. Instead, you might be allowed to claim 50% of the replacement cost, because you have proof (keep those receipts and guarantees!) that the carpet should last 10 years, and it needs to be replaced after 5. This link is a useful guide: http://www.tds.gb.com/resources/files/A-guide-to-d...
This is a complex area, and it’s one of the key reasons why a great lettings agent can save you time, stress, and money in the long run. We can spot (most) problem tenants at the application stage, ensure that deposits are taken and held properly, properly inventory the state of the home at handover, and represent your interests at the dispute resolution service as a last resort. We can be better at this than most people, because we have the experience to back it up.
As with all my advice columns, this is just a quick overview of the issues, and my suggested solutions. If you have any issues, questions or comments on what I’ve written than please do contact myself, Jasmine or Matt and we will be very happy to help.