At the end of a tenancy you should return the deposit to the tenant unless you have justifiable reasons for keeping it. Disputes over deposits are common and can end up in court if you and your tenants cannot come to an agreement. Keeping accurate business records will make it much easier for you to prove your case in court if you have a genuine reason for keeping a deposit.
Reasons for retaining the deposit
You can only retain some or all of your tenants' deposit to cover any financial loss that you have sustained as a result of the tenants' actions or negligence. The deposit can be used to cover:
- rent arrears
- repairs for damage caused by tenants
- replacements for items damaged or taken by tenants
You can't use the tenants' deposit for
- wear and tear, e.g. freshening up paint work for new tenants
- purchasing brand new items to replace old items, you must use the "like for like" rule and only deduct a proportion of the replacement cost from the tenants' deposit
- any repairs or replacement costs that arose due to negligence or poor management on your part.
Tenants often ask if they can use their deposit to cover the last month's rent, but this is not advisable. If you allow your tenants to do this, you have no security against any damage they may have caused in the property. You will have to take court action to reimburse yourself for any repairs or replacements.
Informing your tenants
The deposit, minus any reasonable deductions, should be returned to the tenants within 28 days of their leaving the property. If you have made any deductions from the deposit, you should note these and provide receipts for any replacements purchased or repair work carried out.
Your deductions should be based on a full property inspection. You should inspect the property on the day on which the tenants move out or as soon after that date as is possible. On your inspection, compare the property's condition with the condition noted on the inventory and the photographs supplied when the tenants moved in.
If you have retained some or all of the deposit to cover the cost of replacements or repair work you must be able to prove to the tenants that you have paid these costs. It is vital that you keep receipts and send copies to your tenants to prove your expenditure.
Disputes and court action
Your tenants may dispute your right to withhold the deposit. If the deposit was paid after 1 April 2013 the tenants can raise a dispute using the tenancy deposit scheme's dispute resolution process if they disagree with your decision to withhold some of their money.
Tenants whose deposits did not need to be protected may decide to take court action against you to recover their deposit. You will receive notice of their intention to take action against you. You must file an intention to defend or a counterclaim. You should indicate whether you wish the tenants to pay your costs if the court finds in your favour.