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Deposit deductions: what is fair?

Picture the scene: your tenants have just moved out and left behind a property that’s sparkling clean, in perfect condition, and definitely doesn’t have any miscellaneous items lurking in the kitchen cupboards.

Too good to be true? Probably. One (potentially) frustrating truth of being a landlord is that your investment is for living in. Even the most careful tenants may cause a bit of wear and tear.

Deposits are taken at the outset to safeguard your property, although it’s still deemed the tenants’ money until proven otherwise. Landlords need to ensure that any deductions they propose are fair, balanced and accurate. As members of ARLA– the Association of Residential Letting Agents- we can share with you their advice on handling deposit deductions and ensuring a smooth transition between one tenancy and the next.

Moving out: best practices

Tenants have an obligation to ensure the cleanliness standard is the same as it was when the tenancy started, so it’s always advisable to remind them of this before they depart. Best practice is to organise a professional check-out report on the move-out day. This allows for an accurate, unbiased ‘snapshot’ of the condition of the property upon their exit.

It should now be clear if there’s any work to be done before the next tenant moves in. But who’s responsible for covering the bill?

Fair wear and tear 

The single most important thing to remember about deposits is that as a landlord, you are not necessarily entitled to charge your tenants for getting an item back to its original condition. Whether you are or not is totally dependent on the level of damage.

If an item has experienced “fair wear and tear”, then the landlord typically will cover the cost- so what exactly does this mean?

Fair wear and tear can be defined as any damage that one could reasonably expect to occur during a period of occupancy. When assessing an item, you’ll need to consider the following:

  • What condition it was in at the start of a tenancy (this is why the check-in report is crucial)
  • Its average lifetime and value
  • How frequently you’d expect your tenants to use it
  • How many people were living in your property and using said item
  • How long they lived there for

Beyond fair wear and tear

Sometimes your property will have experienced more damage than you would expect. In this case, it is fair to make a deposit deduction- although it’s not quite as simple as charging for a replacement item:

  • If an item is damaged but is still useable, you can charge for a decrease in its value or its lifespan.
  • If an item is so badly damaged that it’s currently unusable but could be repaired, you can charge for its restoration.
  • If an item is so badly damaged that it’s unusable and can’t be repaired, you can charge for a replacement.

As a landlord you have a duty to make sure you take a course of action that’s both reasonable and practical. It may be more beneficial to your next tenants (and encourage them to stay for longer) to just replace an item rather than having it cleaned or repaired, but you’ll only be able to deduct the cost of the repair job from the deposit.

It’s also worth noting that you must take the principles of fair wear and tear into account before making any deductions- you’re charging to get an item to the condition that you’d expect it to be in at the end of the tenancy, not the start of it. This is known as avoiding betterment: essentially avoiding cases in which you are looking to unfairly gain at the expense of your old tenants.

For example, if 25% of a carpet is damaged then it wouldn’t be appropriate to attempt to claim for 100% of it. This is because the other 75% has only suffered fair wear and tear and is in the condition you’d expect it to be in at the end of the tenancy. The options in this instance would be to have a spot or partial clean done and claim this expense, or to have the entire carpet cleaned and remove 25% of the total fee from the deposit.

a rented property's living room

What next? 

So, you’ve calculated what costs are to be covered by you and what costs are to be covered by the tenant- what happens after this?

Make sure that any communication is handled as soon as possible and is in writing. It’s really important that any third parties you work with to get an item repaired, cleaned or replaced provide both a receipt and a clear breakdown of the associated costs. It may be difficult for a tenant to understand the reasoning behind such charges, so including an explanation of exactly where their money has gone will minimise a chance of a dispute. It is also important that authorisation is given to release any non-disputed deposit amount as soon as possible- no doubt your vacating tenants will appreciate it with an onward move to pay for!

Disputes and the arbitration process

Unfortunately, you can do everything by the book and still have your tenants dispute a claim. If you really cannot agree on a resolution, the arbitration process- asking an unbiased third party to decide on the issue- will help.  The specifics of the arbitration process, such as whether the disagreement will be reviewed by a deposit scheme or the court, should have been set out in the contract at the start of the tenancy. Marsh & Parsons use the Tenancy Deposit Scheme (TDS) and can handle the protection of the deposit for our landlords.

If you choose to use a deposit scheme directly, you should have registered at the start of the tenancy. Pay the money to the scheme as soon as the dispute is raised. You will then need to provide your case and support it with evidence. It’s important to check the guidelines of your specific scheme that are relevant to your case, as each is different.

General tips on providing a case:

  • Only provide information and evidence that is relevant. Anything that is not will only confuse your case.
  • Stick to facts, not opinions. Whilst it’s understandable that disagreements are going to occur, it’s always advisable to avoid anything that’s open to ambiguity.
  • Make sure it’s made absolutely clear what you are looking to claim for and why. Ensuring that all information, receipts and photos are provided along with an outline on how you arrived at the price. This will allow the arbitrator to make an informed, accurate decision and ensure the dispute is resolved quickly.

Taking these steps should ensure a hassle-free transition from one tenant to the next. Landlords who use our managed lettings service have a dedicated property manager to help oversee the full deposit release process; if you are interested in finding out more please contact our property management team.

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