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Before deposit protection legislation came into force in England and Wales on 6 April 2007, tenants had very few rights when it came to getting their deposit back.
Most landlords have always been decent and only made deposit deductions when they truly felt the tenant should be responsible for the cost of repairing damage. But there were too many stories about landlords holding onto all their tenant’s deposits and either overcharging for things like cleaning or simply refusing to give a reason for not returning the deposit at the end of the tenancy.
As it now stands, if a private residential tenant anywhere in the UK pays a security deposit, it has to be protected in a government-approved scheme, and if a landlord wishes to withhold any of that money, they have to prove that their claim is valid and reasonable.
Here, we’ve put together a series of questions and answers about deposit protection that should tell landlords (and agents) all they need to know, including: when and how a deposit needs to be protected, what to do with the deposit at the end of a tenancy and how disputes over the return of a tenant’s deposit should be handled.
This guide relates to deposits taken for assured shorthold tenancies (ASTs) in England and the standard occupation contract in Wales. Further information on deposit protection in Scotland and Northern Ireland is included towards the end.
A tenancy deposit is an amount of money paid to a landlord or agent by a tenant before they move into a property, also known as a ‘security deposit’. It is protected by a landlord or their agent for the duration of the tenancy and then the balance is returned to the tenant after they have left, less any reasonable deductions made by the landlord in respect of damage to the property or rent owed.
There’s no legal requirement to take a deposit, but it is a good idea, for two key reasons:
A holding deposit is a payment made by a tenant to ‘reserve’ a rental property while pre-tenancy checks are carried out. It cannot be more than the equivalent of one week’s rent and should be refunded in full if the tenancy does not go ahead, unless any of the following apply:
If the tenancy goes ahead, the holding deposit should either be returned to the tenant within seven days or deducted from the security deposit or first month’s rent.
Unlike a security deposit, a holding deposit does not have to be protected. You can find out more about holding deposits in our partner, the Property Redress Scheme’s (PRS) guide to holding deposits, which you’ll find in the resources section of the PRS’s website.
Since the Tenant Fees Act came into force - on 1 June 2019 for new tenancies and 1 June 2020 for all tenancies - landlords and letting agents have been banned from charging certain letting fees to tenants.
Under the Act, there is also a cap on the amount that can be taken as a security or holding deposit:
Landlords or agents who breach the Tenant Fees Act by charging a ‘prohibited payment’ could be fined £5,000 for a first offence and risk an unlimited fine if they break the rules again within five years.
Also, no Section 21 notice can be served until the prohibited payment has been refunded to the tenants. Local authorities have enforcement powers to deal with offences and have discretions on whether to prosecute or impose a fine only.
Although it’s common for landlords to ask for a month’s rent as a deposit, you can take more. If your tenant’s total annual rent is less than £50,000, you can take a deposit of up to five weeks’ rent, increasing to six weeks’ rent if the annual rent is £50,000 or above.
To calculate a week’s rent, multiply the monthly rent by 12 and divide by 52. And for a quick way to find out the maximum rent you can charge, mydeposits has a handy online calculator.
If you take a deposit from your tenant, it must be protected in one of the three government-approved tenancy deposit protection (TDP) schemes within 30 days of receipt. You or your agent can either:
You must also provide your tenant with ‘prescribed information’ relating to the TDP scheme and the tenancy within 30 days.
See below for more information on the available schemes.
As long as the deposit money has been registered with a TDP scheme provider and insured, then you can keep the deposit in your bank account.
There are three government-approved tenancy deposit protection schemes available, all of which offer both Custodial and Insured options:
Each scheme provider operates and charges in a slightly different way, so it’s just a case of deciding which one is right for you.
mydeposits, which currently protects more than 1.1 million deposits, is partnered with the NRLA and is also the only scheme operating throughout the UK and Channel Islands. And because it is part of the HFIS group, many landlords find it’s convenient to have both their deposit protection and landlord insurance under the same roof.
Visit the mydeposits website to find out more and compare our Insured and Custodial products.
You or your agent keep the tenant’s deposit and pay a small fee to a TDP scheme to insure the deposit.
As with a Custodial scheme, you must protect the deposit and issue prescribed information to the tenant within 30 days of receiving the deposit.
The benefit to you is that you can earn interest on the money and if there are deductions to be made at the end of the tenancy and the tenant agrees, you have immediate access to the money. You can also make sure the balance is returned to the tenant quickly.
You or your agent pay the deposit to a TDP scheme and they hold the funds for the duration of the tenancy.
As with an Insured scheme, you must protect the deposit and issue prescribed information to the tenant within 30 days of receiving the deposit.
The benefit of this type of scheme is that there is no protection fee. However, it does mean there will be a small delay (generally up to 10 days) in your tenant getting their deposit back at the end of the tenancy and in you receiving any agreed deduction to pay for damage or rent owed. It can also take some time for the deposit to be released if the tenant has left owing money and cannot be contacted.
Once you have received a deposit, you must protect it and provide your tenant with the following information within 30 days:
There are two consequences of not protecting your tenant’s deposit and not providing them with the prescribed information:
Be aware that some legal companies offer services to tenants to make claims against landlords for not protecting deposits. Read more about landlord fines and how you can avoid them.
By law, the deposit remains the tenant’s money throughout the tenancy. If you are protecting the deposit in an Insured scheme, you could invest this for the length of the tenancy, on the understanding that at the end of the tenancy, the tenant is entitled to a full refund unless you can prove that you have a valid claim for deductions.
Tenants do sometimes request that their deposit be used for rent - commonly in the last month of their tenancy. However, it’s not advisable for landlords to agree to this, as that means there will be little or no money left if you want to make a claim for deductions when the tenant leaves.
If you do agree, it should be clearly put in writing and signed by both parties.
Of course, if the tenant is in arrears at the end of the tenancy, then that rent can be deducted from the deposit.
If there are no deductions to be made, the full deposit should be returned to the tenant.
In the case of a Custodial scheme, both parties will need to confirm to the scheme how much should be returned to the tenant - and to the landlord, if deductions have been agreed. Either party can initiate the deposit release. In the case of mydeposits, they will then return the deposit within one to two days (two days for England and Wales Insurance and Custodial, and one day for Scotland, Northern Ireland and Jersey).
If you wish to make deductions and the tenant disagrees, you will need to provide the scheme’s dispute adjudicators with evidence (see below). The claim will be investigated, and once the adjudicator has made their decision - which is final – the money should be received within five days.
If you have used an Insured scheme, you can simply return the deposit to the tenant as soon as you’re happy there are no deductions to be made. If there is a dispute, the disputed amount must be handed over to the TDP scheme provider and they will hold it until the issue is settled. Any undisputed amount should be refunded to the tenant immediately.
The deposit must be returned to your tenant within 10 days of you both agreeing how much they’ll get back.
Deductions can be made from the deposit to pay for the following:
You cannot charge the tenant for:
For more information and case studies, see our mydeposits guide: ‘Rules of Claiming for Deposit Deductions’.
The first thing to do is discuss any damage and cost of repairs with the tenant and try to come to an agreement over how much they should contribute. If that’s possible, then you can simply either return the balance to the tenant (Insured scheme) or initiate the return of the deposit with the TDP scheme, stating the amount to be returned to each party (Custodial scheme).
If the tenant disagrees, then you need to apply to the TDP scheme’s free deposit dispute resolution service. And if the deposit is in an Insured scheme, the disputed amount must be given to the scheme, who will hold it until the dispute is settled.
It’s important to understand that, by law, the tenant is entitled to a full deposit refund unless you can prove your claim. That means you will need to provide the adjudicators with the following evidence:
If any damage or disrepair was recorded and discussed with the tenant during periodic inspections, this information should also be provided – ideally with photographs and evidence of any written correspondence between you and the tenant.
The adjudicator’s decision on how much of the deposit can be withheld is final and money will be paid within 10 days.
See our mydeposits guide, ‘Rules of Claiming for Deposit Deductions’, for more detailed information and advice.
In an ideal world, all tenants would pay for the damage they cause. However, the reality is that if a tenant has treated your property with so little care that the cost of making repairs is greater than the amount held on deposit, they’re unlikely to compensate you willingly.
If there is a guarantor for the tenancy, you should approach them with your evidence – the check-in and check-out inventories and quotes for making repairs – and request that they pay on the tenant’s behalf.
Paul Sowerbutts of Landlord Action, Total Landlord’s partner and one of the UK’s best-known eviction and housing law specialists, adds:
“The final thing you can do, if neither the tenant nor any guarantor is prepared to pay, is make a legal claim against the tenant. As long as the amount is under £10,000, you can use the county court small claims procedure and apply online. It’s cost-effective as no solicitor is involved. You may well still need to enforce the order, but the order will last six years.”
Paul Sowerbutts, Head of Legal, Landlord Action
However, the court needs to write to the tenant, so if they haven’t left a forwarding address and refuse to respond to emails and calls, it can be hard to pursue them.
As such, the best way to protect yourself is by having landlord insurance that covers you for damage caused by the tenant. And, given that tenants can build up rent arrears that are much greater than their deposit, it’s also well worth considering rent guarantee insurance.
“Most tenants do look after their rented home well, but there will always be some that are either careless or cause damage deliberately. In a worst-case scenario, you might get a tenant who sets up a cannabis farm in the property, which could cause structural damage that will cost thousands, if not tens of thousands to put right – meanwhile, you’re also losing rent while the property can’t be let.
So, we recommend landlords always make sure they have a robust landlord insurance policy to protect them financially in case their tenants maliciously damage their property, leaving them with a bill that’s far higher than the deposit they hold.”
Steve Barnes, Head of Broking, Total Landlord
Disputes usually arise through misunderstandings, so the best way to avoid a deposit dispute is to be clear and up-front with your tenants right from the start of the tenancy.
When a tenant moves into your property, go through the check-in inventory with them and have them sign to say they agree with the contents, condition and cleanliness of the property as recorded in the document. See our ultimate guide to an inventory and schedule of condition, for more information and advice on when and how to use inventories.
Explain that the property should be handed back at the end of the tenancy in the same condition, and that they will be responsible for the cost of repairing any damage over and above reasonable wear and tear – making sure they understand the difference between ‘damage’ and ‘wear and tear’.
Carry out periodic inspections and if you notice any damage, discuss it with the tenant there and then, giving them the opportunity to make repairs before the end of the tenancy. Read our guide to landlords’ and tenants’ repair responsibilities for more information.
It’s also a good idea to arrange an inspection two to three weeks before the tenant is due to move out, so you can highlight any damage they might have to pay for and remind them about cleaning. That way, if you need to make deductions from the deposit, it shouldn’t come as a surprise to the tenant. Our ‘End of tenancy cleaning and inventory checklist’ covers the key areas landlords and agents should mention to tenants, to help them return the property in as clean a condition as expected.
And when explaining how much you propose to withhold from their deposit, be specific and have evidence and quotes to hand, so they can see you are being reasonable.
Every TDP scheme provider offers a free, impartial dispute resolution service that will make a decision on a deposit deduction, if negotiation between you and your tenant is unsuccessful.
This benefits both landlords and tenants as it provides an independent, evidence-based assessment of the deposit allocation to make sure there is a fair outcome for both parties. It also helps landlords and tenants avoid costly court fees and reduces the chances of further issues occurring.
While it’s a valuable and effective service, it’s worth knowing that less than three per cent of deposit protections end in dispute.
“Working with numerous landlords and agents over the years, it is clear that maintaining a good relationship with your tenants, and having good evidence at hand for discussion about costs at the end of the tenancy proves successful in most cases. Where it is unsuccessful, our free, impartial dispute resolution service does provide peace of mind when things become contentious. Our early resolution process, which is an option for some cases, allows both the landlord and the tenant to settle their differences quickly.”
Suzy Hershman, mydeposits Resolution department lead
Deposits taken in Scotland must also be protected. The rules and conditions are similar to those in England and Wales, with two key exceptions:
For more information, visit the mygov.scot website.
Deposits must be protected in Northern Ireland, although there are some differences to the rules in England and Wales:
Full information is available on Northern Ireland’s Housing Rights website.
Deposit protection schemes were introduced to provide a fairer way to settle disputes regarding deposits when a tenancy ends. But the introduction of tenancy deposit protection legislation was pivotal to the modernisation of the private rented sector, representing a key turning point – landlords, tenants and agents finally had security and protection within the sector.
Suzy Hershman sums up:
“Deposit protection has been a blessing for most and a curse for just a few, but what it has done is improve the lettings sector as a whole. Landlords have the security of the deposit for any damage or outstanding rent but cannot just keep the deposit. It has led to better audit trails, quality condition reports and practices. Tenants feel more secure knowing that the deposit is theirs and understand what they need to do, to have it refunded at the end.”
Suzy Hershman, mydeposits Resolution department lead
If you have any further questions about deposit protection, you can find the answers to more frequently asked questions on the FAQs section of the mydeposits website, where you’ll also find contact details for their customer services team. You can also read more information for landlords and more information for agents on the mydeposits website.
