Deposit disputes – how to protect your rental property

It’s highly probable that anyone who has ever rented a property will know about deposits, and for landlords across the nation, taking a deposit from a tenant is an important part of securing your investment and protecting your property against damage.

Ideally, your tenant will leave the property in immaculate condition when they move out. However, the reality can sometimes look different. Some tenants won’t restore your property to its original form when they hand the keys back – be it damaged sofas, miscellaneous items left in kitchen cupboards or even broken windows.

When this is the case, landlords are left with no other choice but to deduct money from the tenant’s deposit. Some tenants will be understanding and have no complaints with this; however, others will not let their money go without a fight – leading to deposit disputes and deductions.

Although deposit disputes only occur in less than 1% of tenancies, they can cause significant losses, and that’s without equating how emotionally draining this sort of situation can be for both parties involved.

As a landlord, or an agent acting on your landlord’s behalf, you will be eager to protect your investments and establish smooth transitions from one tenant to the next, which is why here at the AIIC have written this blog to explain how you can protect your rental property if you ever find yourself in a deposit dispute.

The return of deposit

Once a tenancy ends, it is the responsibility of you as the landlord and property owner to return the tenant’s deposit in a timely fashion. For insured protection schemes where you have held the money from a deposit yourself, you must return the deposit within 10 days.

If the money is held by the deposit protection agency, such as with custodial schemes, then the landlord and tenant must agree on how much of the deposit is returned and inform the administrator.

Once the amount returned has been agreed upon, which can be anywhere from 0% to 100% of the deposit, the tenancy deposit (TDS) scheme will typically release the funds back to the tenant within two days.

As stated above, this process usually runs smoothly, however it’s important to understand, in certain cases, what a landlord can deduct from a deposit and why disputes are raised in the first place.

Justifications for deducting from a deposit

There are a number of reasons why deposit disputes can occur, starting off with rent arrears and unpaid bills since these are the two most common things landlords deduct from deposits.

Surprisingly, rent arrears only accounted for 15% of contested deposits in 2021, which suggests that tenants will find it challenging to raise a deposit dispute as long as you can provide adequate evidence of rent arrears.

In the instance of a dispute over the deposit, if the tenant asks the adjudicator to investigate this deduction, the adjudicator will have to allow the landlord to keep this money as the tenant has failed to observe one of their basic contractual obligations, payment of rent.

The situation becomes complicated when the adjudicator won’t be able to consider the tenant’s reasons for failing to pay rent and cannot make a ruling based on whether or not the tenant is entitled to ‘compensation’ because the tenant alleges that the landlord has failed to carry out repairs or otherwise provided a ‘poor’ service.

Tenants who believe that they are justified can choose to try and recover their deposit through the Small Claims Court, rather than using the deposit dispute resolution service, but this can prove costly and very time-consuming, particularly now when the courts have such large backlogs.

Additional reasons for landlords deducting money from a deposit also include if the landlord’s contents have been stolen or damaged by a tenant, the property itself has sustained damage directly related to the tenant, the property has been left in disarray, or if the tenant has left items in the property and not arranged for them to be collected.

The importance of inventory and taking legal action

Your inventory will often be the golden nugget needed if a deposit dispute ensues, as the check-in document will detail the exact condition of the property, and this can then be compared to the check-out report.

The information provided in the tenancy agreement will also be vital because this will clearly outline your expectations as the landlord as well as the obligations of the tenant towards the property.

During the check-out process, the level of detail contained within both the inventory and the check-out is important as this will greatly contribute to the evidence you need to provide if deciding to take legal action. Legal action should only be taken as a last resort, with all the government-approved deposit protection schemes having mediation services to try and ensure it doesn’t reach this stage.

If the tenant decides to contest deposit deductions, they have up to three months after the tenancy has ended to raise the dispute with the TDS. If a letting agent manages your property, it’s worth asking them to provide you with relevant information on where the tenant’s deposit is registered and what the deadlines are.

When the time comes, after you have collated evidence to support your claim, and handed it in, the adjudication process can start. For custodial deposits, the independent adjudicator has 28 days to arrive at a decision, meaning that it can take up to six weeks, although it’s usually quicker.

While the dispute is ongoing, you can still reach an agreement with the tenant if you decide to talk to each other about the claim. However, once the adjudicator has made their decision, funds will be awarded which will be final and binding.

Best practice – avoid deposit disputes

Going through the process of deposit disputes can be tiresome and costly, so clear and consistent expectations at the very start of the tenancy are the very best way to avoid these disagreements.

As the landlord, it will be your duty to provide a detailed list of expectations that need to be met to get the entirety of the deposit back. This will in turn give a solid guideline for returning the property to the same condition it was when they took possession. Inventories also play a major part in allowing for clear and transparent comparisons regarding the condition of the property at the start and end of a tenancy, and also – if you carry out a mid-term inspection – the middle of a tenancy as well. 

Here at AIIC, we are dedicated to promoting the highest possible standards of accuracy and reliability in the inventory process along with deposits and have been endorsing high levels of professionalism in the inventory business since 1996.

It is our mission to ensure proper information and training is provided and our bank of highly skilled members will provide the best possible service. For more information, please contact us or search for your local AIIC member clerk now.

You can also download a copy of our Code of Practice and Guidelines for Professional Practice guide here.

Published on 09/09/2022