Nobody enjoys deposit disputes with tenants, but when they do happen you must know your rights and obligations.
Surprisingly, many landlords are not aware they are required by law to put their tenants’ deposit in a government-backed tenancy deposit scheme (TDP) if the property is rented on an assured shorthold tenancy that started after 6 April 2007.
As a landlord, you naturally want a tenancy to be as hassle-free as possible, and, more often than not, that’s exactly what happens. Even so, disputes can happen. When they do it’s important you handle it correctly and get the details right to ensure the best outcome. If you don’t, life can become difficult.
At Howsy, we work with mydeposits to provide deposit protection solutions to our landlord . They are one of the three government-backed tenancy deposit schemes for England and Wales, and have been on the market since the regulations changed in 2007. They currently hold more than more than £4bn of landlord money and, last year handled 9,000 disputes.
In our latest webinar, we asked Susie Hershmann – Head of Dispute Resolution at mydeposits to talk us through deposit disputes, and how to handle them correctly. The one lesson to be learned from those disputes is that the people who know the rules and their obligations tend to get the best results.
How it should be done
Let’s start with a case study: one landlady who recently had a dispute with a tenant about the state of her house. Like many contracts, hers included a rule forbidding pets, but an inspection found an unpleasant smell in the carpet which they later identified as cat urine.
At the end of the tenancy, she tried cleaning the carpet, but without luck. Cat urine is very difficult to remove and although it loses its odour when dry it will smell again when it becomes wet. Although she tried everything to mitigate the loss to her tenant she eventually concluded that the carpet had to be taken up. Because the tenant had violated the ‘no pets’ terms of the contract she believed they should cover £650 of the repairs.
She negotiated with the tenant, but could not reach an agreement so the case went to adjudication. Here she had to demonstrate that the terms of the contract had been breached, the house was not returned in the same state it had been in and putting it right had incurred a financial loss. She was able to present all the required information such as invoices, emails, the contract as evidence which put her in good stead. In the end, the adjudicator ruled that the tenant should pay £540 – a reasonable result for the landlord.
Her story is a good example of what landlords should do with tenants. She took every measure she could to avoid or mitigate any financial loss for the tenant, she got quotes, kept her invoices and copies of contracts. She provided clear evidence which made the job of the adjudicator relatively easy.
Other landlords are not so thorough. Perhaps they can’t provide evidence or they fail to meet their obligations which makes it more difficult to recover the costs. So, before you start, you need to understand everything about deposit protection to put yourself in the best possible position.
About deposit protection
First of all, a little bit about deposit protection. As a landlord, you are obliged to place the tenant’s deposit in a protection scheme within 30 days of taking the deposit. It’s a two-stage process – protecting it with a scheme and informing the tenant. This allows them to use the free ADR process at the end. If you don’t protect it properly you may struggle to get the money back.
That scheme can be either insurance-based or custodial. An insurance-based scheme involves you or the agent holding the money and paying a deposit fee. A custodial process sees you transfer the money to a deposit protection scheme for which there is no deposit fee.
There are several things to remember with deposits:
- This is the tenant’s money: It does not belong to the landlord or anyone else.
- The burden of proof lies with you, as the landlord: You will have to show evidence which proves the tenant is liable. For that they must show that the property was not in the same state it was when it was handed over, and that any damage is more than a result of natural wear and tear through ordinary usage, they must not attempt to improve their property at the tenant’s expense.
- Evidence rules: An adjudicator cannot make assumptions and must work on the evidence they have at their disposal. They do have leeway for discretion, but if your evidence is clear the room for discretion will be much narrower and you will have a better chance of getting a good result.
- The adjudicator’s decision is binding: The adjudicator’s say is final and binding, unless there is a mistake in facts or an error in law.
Be relevant with your evidence. The last thing you want is an adjudicator missing something in the list important because it was buried in a list of irrelevant information. Be clear and show the tenant what their obligations are and how they have contravened them.
The more evidence you have the better, but negotiation is always preferable. It’s quicker, easier and less expensive. You don’t want to be left with a property which is empty while you sort out a dispute with a previous tenant. Remember: your time has a commercial value and it’s always best to move on as quickly as possible.
It’s not about winning or losing; it’s about compromising to get the best result. Both sides will have to manage their expectations and be reasonable about what they might expect to get back. From a landlord’s perspective, that’s partly about assessing how much should really be deducted from the deposit.
When assessing deductions, an adjudicator will take several things into account such as the age of the item, the quality and the length of the tenancy. They will consider what constitutes normal wear and tear, and they will not let you improve a property at a tenant’s expense.
As a guide, go through this process:
- Number of issues: List the number of issues you need to address.
- Get the tenancy agreements: These are great negotiation tools to remind all sides of their obligation.
- Check in check out inventories: Be comprehensive with your inventories. This will be the basis of your tenancy. Don’t use vague descriptions.
- Supporting evidence: Keep all evidence, follow up any conversations with tenants directly.
- Breach and loss: You will have to show that there was a breach of contract and that you suffered a financial loss.
- A reasonable settlement: The adjudicator will consider what constitutes fair wear and tear before finally coming to a reasonable settlement.
This gives you a good basis, but every case is different and it’s worth looking at a few common examples we get to see in the real world.
- Tennant had a new mattress when they moved in three and a half years ago but now it’s stained. The tenants don’t feel it is unreasonably stained for its age. It’s all about life cycle. Three to four years for a mattress is reasonable. Even if you push it all the way, you might not get a fee which is worth the time you spend. Always think about what is reasonable wear and tear and if the results justify the time you spend.
- A tenant has left without paying the last month’s rent. Can this be claimed back from the deposit? Unfortunately, it is quite common for tenants to leave without paying the last month’s rent. If the landlord has only taken a month’s worth of rent as a deposit there will be no money left to make deductions. You may deduct rent from the deposit, but that may not cover the rent and you may have to chase them through the courts.
- Getting tenants to sign an inventory. You will need proof that the tenant has seen the inventory and had an opportunity to make any amendments. This normally involves getting a signature, but if you can show that you sent them the information such as through an email attachment that may still be sufficient.
- A tenant redecorated a property without permission. While this is a breach of their contract, it is difficult to establish that there was a loss. For example, if the walls were originally ivory but the tenant painted them white there isn’t a big change and it’s hard to show it cost the landlord any money. Indeed, they may even have improved the value. On the other hand, if they have painted the walls bright purple, it might be easier to prove a loss.
The same goes if a tenant has been hanging pictures on the walls. Many landlords forbid hanging pictures, but there needs to be a reasonable amount of damage. A nail would count, but picture tacks might not unless they were used excessively.
Marks on the wall is another area of contention. For example, if a tenant has been keeping a bicycle inside and it has left light scuff marks, this might not be a problem, but if it’s a family which has left a lot of marks all over the wall – such as several bikes or a toddler drawing in crayon, you might have a better claim.
All in all, landlords need to take a reasonable approach and understand what they should do at every stage. Be reasonable and think about how much your time is worth. You might get something more if you go to adjudication, but is it worth your time and money and would it not be better to more on and get a new tenant into the property? Do your groundwork and maintain a clear paper trail. If you do have to contest the deposit, it’s good to have all the evidence in place to show there was a breach and how much it has cost you.
At Howsy we recommend all our clients to choose the insurance-based scheme where we hold the deposit. The deposit fee is covered within your monthly fee, so it comes at no extra cost to you, and in the case of a dispute we will handle the process explained above and save you a lot of hassle.