Homesure Property

Tenancy Deposits – Don’t Get Burned

Nicholas Stott

Nicholas (Nick) is Managing Director of Homesure Property specialising in Property Investment, Property Development, & Property Management.

One of the most time consuming property management tasks that I deal with is, without doubt, deposit disputes. It is also one of the issues that landlords feel most passionately about and understandably so. A lot of landlords are accidental and have inherited their properties. It is therefore even more distressing if a tenant leaves the property in a poor condition. The information below aims to outline exactly what you need to do to be compliant and to maximise your chances of winning a dispute.

Who takes deposits, where are they stored and why?

If you use an agent, they should take the deposit up front at the start of the tenancy for you when they take the first months rent. The value of the deposit is typically equal to 1 months’ rent.

By law, all deposits must be stored in a government registered scheme. These schemes have been created with 2 main purposes.

  1. To prevent rogue landlords or agents from absconding with tenants money. Something that all genuine landlords and agents are keen to see eradicated as quickly as possible.
  2. To ensure that there is an independent body to adjudicate any disputes that may arise.

Why are deposits disputed?

Landlords claim to retain the deposit for 2 reasons:

  1. The tenant has left in arrears. If you are making a claim on this basis, they are relatively easy to win. All you have to do is provide the rent schedule and rent recents – this will prove the discrepancy. This couples with a signed tenancy agreement should be sufficient. It is fairly easy to prove that rent hasn’t been paid.
  2. The tenant has caused damage to the property or left in an an unclean condition. In order to make a successful claim you need to be able to prove that the damage was not there when the tenant moved in, but was when they left. These disputes are much more difficult to win. To win, you will need to have a detailed photographic or video inventory from when the tenant moved in, this will need to be signed by the tenant. You will also need a similar checkout document and a signed tenancy agreement. Without these documents you are extremely unlikely to win a deposit dispute on the basis of damages.

When do I need to worry about deposits?

BEFORE THE TENANCY! The main mistake that landlords make when it comes to deposits is only thinking about them at the end of the tenancy when the damage has already been done! If you have a particular worry i.e. if the new tenant has pets, you can ask your agent to request a larger deposit.

We’ve established that to win a claim, you need to pay for 2 inventories to be completed. At the start of the tenancy you need to make a decision:Do I pay for these documents? For inventories to be cost effective, the damage caused by the tenant must exceed the cost of 2 inventories. Only you can make this decision, it will depend on how risk averse you are and the value of the property.

If you elect to have the inventories done, you’re operating on the basis that you will need to make a claim. We have previously lost cases on the basis of bias as a member of our staff completed the inventory – your agent needs to use an independent contractor to avoid this. The agent will present this document to the tenants on the day of move in. the tenant then has 7 days to sign the document and note any changes. It is vital that they retain a signed copy of this document.

What many people don’t realise is that as well as protecting the deposit, your agent also need to send your tenant ‘Prescribed Information” this tells your tenant where their deposit is stored and the procedures involved in retaining it. Your agency also needs to make sure they protect your deposit 14 days after they receive it. If they don’t the tenant can sue for up to 3 x the value of the deposit!

Can anything be done during the tenancy?

Yes! Your agent should be conducting quarterly inspections – this is what you pay your management fee for! You should be receiving photographic reports once every 3 months. We use our maintenance division to carry out these inspections – they can easily identify problems that tenants may not even notice that could become troublesome (and costly) if left undetected. Also, if the tenants have caused damage, we can identify it earlier and act sooner. Nick’s already blogged about this if you’ve liked more information on the service he offers.

What happens at the end of the tenancy?

When your tenant gives notice, send an end of tenancy checklist! Many tenants simply don’t realise exactly what they’re meant to do before leaving. By telling them what needs to be done and giving them the chance to do it themselves, a lengthy dispute process could be avoided. We provide ours with a 4 page document outlining what must be done in each room.You then need to ask an independent third party to complete the check out Inspection and record the condition of the property.

In a nutshell?

Basically the moral of the story is prevention is better than cure! Be aware of what could happen to your property and how to minimise risks. If you’re worried, invest in inventories and make sure you use an agency that you trust to be compliant on your part!