What is a tenancy deposit?

A tenancy deposit is a tenant’s payment before moving into the rental unit. Whenever the landlord incurs costs, including property damage to the property, the deposit is used towards these expenses. Any remaining amounts must be returned to the tenant within 10 days of vacating the unit.

As of 2019, the deposit is restricted to an amount equal to five weeks’ rent. The only exception to this is that if the yearly rent is greater than £50,000, the maximum amount can equal up to six weeks’ rent. A landlord can set a lesser amount but never higher than these maximums.

Is a tenancy deposit and a holding deposit the same thing?

The ‘hold deposit’ is not the same as the tenant deposit. The holding deposit is usually equal to a quarter of the monthly rent. The holding deposit is paid at the time of application. The holding deposit indicates that the tenant is serious about renting the unit and intends to move in. At the time of move-in, the holding deposit is applied towards rent.

On the other hand, a tenancy deposit is protected through a tenancy deposit scheme. It cannot be returned until the lease expires or a notice to quit has been given.

As a landlord, you must protect and hold the tenancy deposit until your tenant has vacated the property.

The landlord must deposit this amount in the tenancy deposit scheme within 30 days of receiving it. These deposits are not intended to cover wear and tear during acceptable use. The deposit may only cover damages to the property or unpaid bills, such as rental arrears.

For example, you may withhold an amount necessary to repair a hole in the wall caused by a tenant. You may not withhold an amount because the walls have scuff marks and need to be repainted.

Within 30 days of your tenant paying the deposit, you need to provide information, in writing, about the deposit. Here’s a complete list of the information your tenant should receive in writing:

  • Legal address of the rental property
  • The amount of the deposit paid
  • How the deposit is protected (insured, custodial, replacement)
  • Contact information for the deposit scheme being used and its dispute resolution service
  • Letting agency or landlord contact information
  • Under what conditions would some or all of a deposit be withheld
  • How and when a deposit will be returned after the end of the tenancy

Usually, this prescribed information is provided in the tenancy agreement, which you must provide your tenant with a copy of. In cases where a tenant does not receive this information, a landlord may not issue a notice to quit. It’s in your best interest (and your tenant’s) to provide the information as soon as possible.

What is a government deposit scheme?

A tenant deposit scheme is a government-run organization that helps landlords and tenants protect and manage deposits. All landlords in England and Wales must use a tenancy deposit scheme to protect deposits. There are three different schemes available:

There are 3 different tenant deposit schemes: custodial, insured, and replacement. There is no charge to use the custodial option. It’s free for both tenants and landlords. Insured and replacement plans have fees to cover the cost of the program.

The main difference between an insured tenancy deposit and a custodial tenancy deposit is that the landlord holds an insured tenancy deposit. In contrast, a custodial tenancy deposit is safeguarded by the government-run organization.

The insured plan for a tenancy deposit scheme is an option that allows landlords and tenants to protect their deposits without using a custodial scheme. With this option, the landlord holds the deposit and is responsible for protecting it. The landlord may pass on some or all of the plan’s costs to the tenant. The tenant must be given information about the insurance plan and the contact information for the insurer.

The replacement plan offers a tenant the opportunity to pay the deposit in several instalments. It also comes with a fee, usually covered by the tenant.

I want to withhold some or all of a deposit for damages. What now?

You should follow the procedures identified by the scheme and request repayment. Each of the authorized schemes will have its own process to follow.

Each scheme provides arbitration and dispute resolution services to help landlords and tenants resolve their differences. This dispute resolution is limited to matters concerning the repayment of the deposit.

Deposit protection schemes do not require inventory or records describing the property’s conditions at the beginning or end of the lease period. However, Sharehouse Project strongly recommends documenting the state of the property at the beginning and end of the lease and periodically throughout the tenancy.

Documenting the property’s condition can support your request to withhold the deposit, especially in cases where the tenant disagrees. Sharehouse Project offers in-app support for inventories, audit records, and resources to help you protect yourself.

In a dispute, you will be asked to submit any records or documentation that support your position.