The ultimate buy-to-let guide to tenancy deposit schemes

How to avoid landlord disputes around deposit money

With a little luck and a good tenancy vetting process, you should benefit from a long-term tenant who respects your buy-to-let investment as if it were their home (which, of course, it is for the period of their tenancy).

One of your responsibilities as a landlord is to place the deposit that the tenant gave you at the beginning of their tenancy into a protected account. By making sure that the deposit money is available to be returned when the tenant leaves your property. If you’ve had a good landlord/tenant relationship, then all should end amicably. You’ll come to an agreement about the tenancy deposit, and either refund in full or in part. Sometimes, though, you and the tenant won’t be able to come to an agreement about the deposit.

In this article, I’ll examine how the tenancy deposit scheme works, what your responsibilities under the scheme are, and how you can win a deposit dispute.

How do tenancy deposit schemes work?

When you let your property on an Assured Shorthold Tenancy Agreement, you are obliged by law to use a tenancy deposit scheme to protect the tenant’s deposit. This kind of works on the premises that all landlords are evil money-grabbers who can’t be trusted to keep their tenant’s money safe and secure!

If you’re using a letting agent or property management company to manage the day-to-day landlord duties, they can put the deposit into a protected account on your behalf. Putting your deposit into a special account, will safeguard it from misuse.

The scheme also has some benefits for you, too. For example, you may be able to access free advice about deductions that you can make, as well as advice about the tenant eviction process.

When must you protect the tenant’s deposit?

After the tenant has given you their deposit you have thirty days to deposit it into one of three government-backed schemes. These are:

When you put the deposit into a scheme, you’ll need to provide the following information in writing to the client:

  • The amount of deposit held
  • Details of the tenancy deposit scheme
  • How to return the deposit at the end of the tenancy
  • How to contact you or your property management company/letting agent
  • Details of the procedures available in the case of a dispute about the deposit

What type of deposit schemes is available?

There are two basic types of tenancy deposit scheme:

A custodial scheme is free of charge, simple to use, and effectively simply holds the tenant’s deposit for them. At the end of the tenancy, the scheme pays the deposit to the tenant.

An insured scheme works in much the same way, except you pay a fee to protect it. At the end of the tenancy, you become responsible for paying the deposit to the tenant.

When to return the deposit?

You will have to return the deposit within ten days of the end of the tenancy unless a dispute arises.

What if you don’t use a tenancy deposit scheme?

If you don’t put the deposit into a registered protection scheme, the tenant could make a complaint to the courts. An you will have about 14 days to correct the situation, and ordered to pay as much as three times the deposit amount as compensation to the tenant.

As if this isn’t bad enough, you could also find it more difficult to evict your tenant, especially if you want to use a Section 21 eviction route.

Why might a deposit dispute arise?

Deposit is protection for yourself against some things that the tenant might do during or after the termination of tenancy. The deposit is designed to provide the funds should the tenant:

  • leave the property in a state that requires extensive cleaning; or
  • cause damage to the property; or
  • leave possessions that need removal; or
  • leave without paying all rent owing.

When the tenant leaves, you or your property manager should conduct a leaving examination of the property. This is where any damage or cleaning requirements will come to light. This may show that there has been damage caused or cleaning that is needed. This is the prime area of the dispute affecting the deposit, although there may also be a dispute over unpaid rent and possessions that have been left behind.

If a dispute arises, the tenancy dispute scheme can process the dispute under the Alternative Dispute Resolution (ADR) service. This is an adjudication process with a binding outcome – both you and the tenant will have to agree to use it. The other course of action is to go to court, which the adjudication process can also recommend.

How to win a tenancy deposit dispute

It’s a common misconception that most tenancy deposit disputes are found in favour of the tenant. In fact, around half of all disputes conclude with the landlord winning their claim in full. The landlords that win are prepared to win. They’ve taken all the precautions necessary (such as ensuring that the tenancy agreement is fully detailed) and collected critical evidence to support their claim.

This evidence includes a regularly maintained inventory (photos and videos are excellent tools to support this) with regular property checking reports and the tenant’s signature on all documentation.

You might also gather other evidence such as invoices for repairs, cleaning and removal, and bank statements or other paperwork that may support claims of rent arrears.

Key evidence and possible compromises in deposit disputes

A dispute about unpaid rent should be easily handled. Where landlord disputes arise over damages and cleaning bills, the outcome is less clear. After all, what is clean to one person may not be considered to be so by another. Your evidence should support your claim in light of reasonable wear and tear, and repairs and cleaning.

Support your claim by producing video and photographic evidence, comparing the condition of the property before the tenancy began and when the tenancy ended. Make sure they are dated (holding a newspaper published on the day of filming is a good technique). And if possible make sure all evidence is gathered by an unconnected third party. Have your tenant date and sign the evidence, too, as agreed to be a true reflection of property condition.

Damage, and wear and tear issues

Wear and tear is a continual process. The dispute adjudicator will determine what would be fair wear and tear by taking into account factors such as:

  • Age and quality of items
  • Condition at the start of the tenancy
  • Expected lifespan
  • Number and type of occupants
  • Length of tenancy

Any claim for compensation that is upheld will make an allowance for all the above elements. It may also prove to be the case that a repair can be affected, in which case the compensation claim will be settled off the repair (take estimates and quotes to support your claim).

Cleaning

Cleanliness is in the eye of the beholder. Which is probably why the need for a clean is the most common cause of deposit disputes.

To give yourself the best chance of winning a dispute over the need for cleaning and how deep that clean needs to be, do these four things:

  1. Make sure the need for a clean has been judged by a third party. This should be an impartial opinion too, such as an agent or inventory clerk.
  2. Always have a specific clause (or clauses) in the tenancy agreement about the condition of the property at the start and finish of the tenancy. Such a clause should include the potential costs of not complying with the agreement.
  3. Have your property professionally cleaned before a new tenancy begins, and keep documented evidence of this (e.g. invoices and receipts).
  4. Provide before and after evidence, including videos and photos.

Winning a deposit dispute starts before the tenant moves in

If you have been slipshod in your approach to tenanting your buy-to-let property, the chances are that the adjudicator or judge will favour the tenant in a dispute over the tenancy deposit. An inexperienced landlord could lose several such disputes before fully understanding the rules of the game.

The trick – if indeed it is a trick – is to prepare for a dispute even before the tenancy starts. A solid and correctly worded tenancy agreement. Ensuring that you have a complete inventory, checked regularly and communicated well with your tenant. Gather comprehensive photographic and video evidence from the outset and at every property inspection. The chances of winning a deposit dispute will improve by doing all this.

Doing all of this takes time, experience, and expertise. Please feel free to contact us by phone +44 1522 503 717 or by using our online contact form for information about our services and how we’ll make sure that you and your properties are fully prepared for any dispute over tenancy deposits.

Yours in effortless property management,

Brett Alegre-Wood MARLA MNAEA

About the Author:

Arlene didn't start in property, she worked for the likes of Marks and Spencer, Harrods and her own consulting business in Food Technology. In 2009 she took over the chair of Ezytrac Property Group and has overseen its growth since then. Arlene conceived the famous 'Effortless Property' mantra and has been a big proponent of the constant push towards its achievement. Arlene is married to Brett, a fellow property expert and they have 4 kids.