Landlords take deposits to give them financial security should tenants: (1) cause damage in the property, (2) leave the place needing extensive cleaning, (3) leave possessions in the property which need expensive removal, or (3) leave owing rent.
Landlords / Agents should ensure that the letting agreement (contract) provides for all these reasons for retaining a deposit.
Landlords / Agents should also be aware that deposits should not exceed 2 month’s rent. If they do under the provisions of the Housing Act 1988 it is possible to argue that the landlord took a “rent premium”, in which case it may be possible for a tenant to legally assign its tenancy without the landlord’s consent.
In April 2007 the government introduced, by way of the Housing Act 2004, the Tenancy Deposit Protection (TDP) Scheme.
This provides for deposits taken by landlords and agents to be either placed in a custodial scheme or alternatively held by the landlord / agent in a ring fenced account and protected by insurance backed TDP scheme.
The legislation was since amended by the Localism Act 2011 and at the time of writing is due for further amendment by the Deregulation Bill following the confusion caused by the Superstrike case.
Landlords and agents taking a deposit from an assured shorthold tenancy (AST) tenant must now protect the deposit in one of the approved schemes within 30 days of taking it. They are also obliged to serve on the tenant a set of statutory information regarding the scheme in question. This information and documentation (s213 notice) is available for download from the appropriate scheme’s website.
Landlords and agents are advised to get proof of service of this documentation on their tenant as failure to comply with any of the TDP rules will invalidate any accelerated possession (s21) claim.
Superstike raised the prospect of landlords having to re-protect the deposit and re-serve the statutory notice (s213) when a tenancy becomes a statutory periodic one from a fixed term tenancy. This is likely to change with any amendment but in the meantime landlords and agents should comply.
When a tenancy deposit or part thereof is supplied by someone other than the tenant, the s213 notice should be served on them, as well as the tenant.
Deposit Disputes and that Crucial Evidence
Most tenancies end amicably and the landlord or agent will agree to either refund the full deposit or an agreement between them and the tenant will be reached, such that all or a part of the deposit is retained to cover the issues mentioned above.
However, it is sometimes not possible to reach agreement and therefore the deposit amount in dispute is put into an arbitration process, which is handled by the DTP scheme in question at no cost to the parties involved. In some cases, where complications arise, the dispute will be transferred to the county court for settlement, in which case fees and costs will be involved, and normally the losing side pays these.
A deposit amounts in dispute will be released from the scheme when the parties agree to this. Otherwise the scheme adjudicators will decide on the evidence presented to them who receives the money.
It is crucial therefore that landlords and agents during the courses of letting build up sufficient documentary evidence to win a deposit dispute claim: a good inventory (preferably done by an independent inventory clerk) with check-in and check-out reports, including photos and tenants signature, is now essential.
Further evidence would include estimates and invoices for repairs and renewals, cleaning and removal costs, rent schedules where there are arrears etc. It is not possible to claim for work that landlords (DIY) do themselves.
Fair Wear and Tear
The contract between a landlord and a residential tenant has an implied term which means dilapidations to the property due to fair wear and tear are acceptable and cannot be claimed against the deposit.
What is fair wear and tear is a matter of subjective judgement to some extent but is informed by the experience of the landlord, agent or inventory clerk, and when in dispute will be decided by the scheme’s adjudicator.
These requirements contrast with commercial tenancies where the lease usually requires the tenant to put back the property into a tenantable state, which usually means complete redecoration, and can even mean major structural repairs as well.
Fair wear and tear has been defined by the House of Lords as:
“Reasonable use of the premises by the Tenant and the ordinary operation of natural forces”
This statement is not all that helpful when it comes to the task of deciding what is fair wear and tear and what goes beyond that?
Reaching a decision means making an allowance for:
– The original age, quality and condition of any item at the start of the tenancy
– The average useful lifespan to value ratio (depreciation) of the item
– The reasonable expected life time usage of such an item
– The number and type of occupants in the property
– The length of the tenants’ occupancy
It follows therefore from established legal practice that a landlord cannot charge its tenants the full cost of having any part of a property, or any fixture or fitting, returned to its original condition, as it was in at the start of the tenancy.
When it is not possible to effect repairs, any compensation when a new for old replacement is made will therefore involve an allowance for age, quality and fair wear and tear.
Further, a duty is placed on landlords and agents to adopt the most reasonable, practical and appropriate approach to achieving a remedy.
Appropriate remedies might include:
Only replacing items where it is so severely and extensively damaged it is now beyond economic repair or, it has become unusable. Here, the most economic repair would be expected.
Small stains on carpets for example may be put down to fair wear and tear, whereas more extensive mark and staining or burns would not.
However, depending on their position it may be possible to cover them with strategically placed rugs and mats and the adjudicator may insist on that.
Otherwise where a replacement carpet is deemed acceptable, any compensation by the tenant would need to take into account: its appropriateness for use in a rental (e.g. colour), quality, its age and expected lifespan. Therefore in these cases the tenant would be asked for a contribution to the cost, new and old.
Repairs or Cleaning
What is clean to one person is sometimes downright filthy to another.
Cleaning is the most common cause of a deposit disputes between a tenant and a landlord, with nearly a quarter of all dispute cases being attributed to issues of cleanliness.
Therefore any adjudicator’s decision will depend on the evidence submitted and how reasonable is the amount being claimed.
Questions the adjudicator may ask:
– Who says it needs cleaning? Is this opinion independent and impartial, e.g. an inventory clerk or agent?
– Did the tenant agree to condition and cleanliness at the start of the tenancy and was it made aware of potential costs of not complying – e.g., a specific clause in the agreement?
– Was the property professionally or DIY domestically cleaned at the start of the tenancy?
– What evidence have you got that shows deterioration, start to end?
Photo & Video Evidence
Photo and video inventories (ideally produced independently) are useful for recording the condition of the property at the start and end of the tenancy and when done properly will provide a clear record of the property prior to its occupation.
You need to make sure all photographs and video evidence is clearly dated and signed and agreed by both parties. This is much easier to achieve when an independent inventory clerk completes the task.
Always make sure the tenant is given a copy at Check-in/Check-out stage, and get a signature to say they agree and understand all the implications after viewing and discussing.
The end result of adjudication will always hinge on the quality of the paper documentation you present, so good quality photo evidence, signed by both parties will add considerably to the weight of a landlord’s case.
Preparing a Claim
Preparation for a deposit dispute claim starts pre-tenancy. If you have not planned your management process: agreement wording, quality inventories, check-ins and check-outs, communicating to tenants your expectations, interim inspections if necessary etc., then your chances of successfully claiming against a deposit are pretty low indeed.
Putting together a good claim is time consuming and evidence heavy – the adjudicator can make a decision only on the evidence presented in document form. Furthermore, there is no appeal once the adjudicator makes a decision. You cannot challenge an adjudication decision unless it is via a court of law. The more evidence you can produce and the more transparent you are with the whole process the better your chance of success.
As a landlord or agent you need to weigh the costs of putting forward a good claim against the amount of money involved. It the one outweighs the other it is sometimes better to return the deposit to the tenants and “bite the bullet” as cost of regards re-instatement.
This can sometime be an act of good will and will prevent any chance of retaliatory action by the tenant – it would not be the first time a landlord had a brick through the window of its rental property because the tenant felt hard done by losing its deposit.