Your easy wear and tear formula to avoid tenant deposit disputes
A buy-to-let landlord doesn’t have to take a deposit from a tenant, and it can be tempting to waive the deposit to secure a tenancy. We would advise against this. By not taking a deposit, you are increasing your risk of financial loss during or at the end of a tenancy. The tenant is also more likely to look after your property; knowing that they could lose some or all their deposit is a big incentive.
In this article, you’ll learn how much of a tenant’s deposit you can withhold at the end of a tenancy.
Why landlords take a deposit
There are many reasons why you should take a deposit. Some landlords believe it protects them against a tenant from hell. Not so. The only way to protect yourself from a nightmare tenant is to ensure you vet applicants properly to avoid the worst tenant types and, during the tenancy, conduct regular property inspections:
- If the vetting process shows up any big red flags, you should refuse the tenancy.
- If property inspections show the tenant isn’t looking after your property correctly, or there has been a change in their circumstances, you should take appropriate action. This might include eviction.
Ultimately, you should hope that the deposit will never be needed and will be returned to the tenant at the end of the tenancy. However, the deposit will at least help to pay for the damage (above expected wear and tear), or a failure to pay rent outstanding. We’ve found that such damage is more likely when the tenant:
- Has pets
- Has a family with children
Problems with late or missed rent payments commonly occur when:
- There is a change in the tenant’s relationship circumstances
- The tenant is a serial career changer
Landlords who have had their fingers burned by a tenant in the past would rarely accept a tenant without a deposit.
How much of the deposit can you keep?
If something goes wrong, the deposit is there to help you financially. Unpaid rent can be paid for by the deposit, though if the unpaid rent is more than the deposit amount, you would have to go to court to claim the outstanding balance.
More commonly, you may need to withhold some of the deposit for damage to property, but before you do so you will have to consider reasonable wear and tear.
What does ‘reasonable wear and tear’ mean?
It’s a fallacy to think that the tenant should return your property to you in the same state in which it was originally let to them. Over time, items get used. Wear and tear occur. There may be some non-malicious damage to the property, furniture, fixtures, and fittings. In a dispute, it may be a judge who makes the decision about how much of this damage is reasonable wear and tear.
You can pre-empt this by making an assessment for wear and tear yourself, and show the tenant that you have accounted for:
- Age and condition at the start of the tenancy
- The usual lifespan of the property (e.g. how long would a washing machine last?)
- The use that you would expect the property to have experienced during the tenancy
- The number of tenants (and type) living in the property
- How long the tenants remained in the property
What you must avoid is claiming some (or all) of the deposit to ‘better’ the property, furniture, fixtures, and fittings.
What is ‘betterment’?
Betterment occurs when a buy-to-let landlord makes a repair that improves the item to a condition better than it would have been under normal wear and tear. For example, let’s say a carpet is stained, and to clean the stain would cost £100. You would not be able to withhold £700 of the deposit to replace the carpet.
What is ‘apportionment’?
If you did want to replace the carpet in the above example, you could use something called apportionment. The £700 cost would be met jointly by you and the tenant. You should pay £650, and the tenant should pay £50 (being the cost of the clean).
Working out the cost of wear and tear
If that carpet was so badly damaged that it had to be replaced, you still wouldn’t be able to charge the tenant the full £700 cost of replacement. You would need to allow for the cost of reasonable wear and tear. To do this, you must consider:
- The replacement cost of the carpet
- The age of the carpet
You can then calculate how much of the cost of the new carpet the tenant should pay, using the following formula to depreciate the carpet:
A = Cost of carpet
B = Age of carpet
C = Expected life of carpet
If the cost of the carpet is £700, the age of the carpet is four years, and the expected life of the carpet is 10 years, then the amount you could reasonably withhold from the deposit is:
C – B x (A/C)
A/C is a calculation of annual depreciation in the value of the carpet. In our example, this is £70 per year (£700/10). The tenant would be liable to pay:
10 – 4 x (£700/10) = 6 x £70 = £420
The lifespan of the carpet should be judged according to the tenants (for example, do they have pets and/or children?).
Always keep receipts
One final tip is to always keep receipts of all items you purchase for your property, and photographic and video evidence (if possible) of your property inventory. These may be needed if the tenant disputes.
If an agent suggests you could rent more easily without taking a deposit, you would do wise to consider whether the agent is for you. For more advice, tips, and to learn why Ezytrac is one of the fastest-growing investment property management companies in the UK, contact one of our team today on +44 01522 503 717.
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