Tenancy Deposits and Fair Deductions

DEPOSITS

This subject has been the curse of many a landlord and tenant since lettings
began. It is the most contentious area I have come across in lettings and can
lead to some very expensive court cases.

No landlord has an automatic right to use the tenants’ deposit monies for
anything other than what has been agreed in the tenancy agreement.

Tenants can not use their deposit monies as the last months rent –
something most of them are determined to do and will do whether you agree to it
or not.

Deposit monies are given to a landlord or an agent of the landlord as a bond
against damage caused to the property during the tenancy. They are not given to
landlords as money to use for other enterprises such as a holiday or a spending
spree in town. Misuse of tenants’ money can in fact be construed as theft. The
point being that the money is still the tenants’ money and no deductions can
be made from that amount without the tenants’ permission (always get it in
writing).

When it comes to damages, too many landlords think they have the right to
replace the washing machine and deduct it out of the deposit even though they
had meant to replace the washing machine 2 years ago. Where an item has failed
or is damaged through wear and tear, then the landlord can not charge the
tenant.

Wear and tear is a funny old thing as it is a very grey area in itself –
what is fair wear and tear? Hence the importance of having an independent
inventory carried out before the tenancy begins. It is difficult at the best of
times to prove that something has broken down or worn out due to misuse by the
tenant.

Some agencies and landlords will hold the deposit as stakeholder. This means
that no monies can be deducted from the deposit without the agreement of both
parties in writing – by far the most effective way to hold the deposit. In
cases where deductions can not be agreed after a length of time, the matter can
be referred to a board of arbitrators. I have always found that when matters get
this far, both parties soon come to an agreement as the board of arbitrators are
not cheap and they will often decide who should fit the bill.

When holding a deposit, do it fairly. Explain in full why you believe the
monies should be deducted to the tenant, again do it in writing, therefore
having a record of what you have said and why. If the tenant is fair minded they
will often agree to what you have to say. Do not try and keep the whole deposit
– the tenant will never agree to this and then the long drawn out process of
deciding what monies should be kept etc starts and everyone gets very fed up!

If the deposit is not enough to cover the damages caused, you will need to
start proceedings against the tenant. Remember though that this is a lengthy
process. In my opinion it is a good idea to have smart accommodation, but do not
go over the top. Do not put anything of any sentimental value in the property
and anything of worth should be removed. However, you will need to spend some
money on items especially if furnished – but do not go over the top. A great
idea is to buy a set of crockery and cutlery that will provide you with spares
so that you can replace missing and broken items. For example if you have a one
bedroom flat, then you need provide no more than 4 of everything – buy a set
of 6 or 8. By not providing much of anything you are discouraging people from
having a lot of friends around for that ever popular party! Thus you are also
minimising the wear and tear factor!

The importance of having an inventory clerk is all to clear should a case
have to go to court. If you have prepared the inventory yourself and have
decided that you are going to deduct monies from the deposit and the tenant
decides to take you to court, you will more than likely find that the judge
favours the tenants’ point of view. He will point out that your are not
qualified to carry out an inventory and that you are in no way independent of
either party, therefore you are biased and have made an unfair judgement.

At the end of the day if more landlords and tenants were fair in nature there
would be very little problem. Alas not the case. Use the tenants’ money with
their full knowledge, keep a written record of deductions and why and explain to
the tenant in full why you are holding back the monies.

Should your tenant decide to use the deposit as the last months rent and
leave the property in a dreadful state then you have recourse on the tenant and
if the damage warrants it, you can pursue the tenant for the costs you have
incurred trying to put everything back. Make sure it is worth it though!