A tenant pays a tenancy deposit, also called a security deposit, before moving into a rental property. In most cases, a 1-week holding deposit is taken when an offer is agreed, in order to hold the property for that tenant while references are checked, right-to-rent checks are carried out and draft tenancy is negotiated and agreed upon.

After the lease is signed and before the tenant moves in, the tenant will make up the security deposit to the equivalent of 5 weeks' rent, and they will pay this with their first month’s rent in advance.

If the property you are letting is in England or Wales and has an annual rent of more than £50,000 (£4,166.67pcm), then you can increase the security deposit to the equivalent of 6 weeks’ rent. In Scotland, deposits are limited to 2 months’ rent.

How to calculate the tenancy security deposit?

It's important to know your weekly rent, even if you are marketing the property as a rental price per calendar month. Take your monthly rental, multiply it by 12 months and divide by 52 weeks of the year.

For example:

1) £1,100pcm rent x 12 months = £13,200 annual rent

2) £13,200 ÷ 52 = £253.85 weekly rent

3) £253.85 x 5 = £12,692.23 security deposit (5 weeks’ rent)

 

On 6th April 2007, it became law under the 2004 Housing Act that all deposits collected by landlords or letting agents for any assured shorthold tenancy or AST renewal must be protected by a designated scheme in England, Scotland, and Wales. The scheme protects the money while the tenant is living at the rental property and gives it back when the tenant moves out. If the tenant does something to damage the property or falls behind on rent, the deposit can be used to pay for these costs.

It is essential to always use a deposit protection plan that is approved by the government, and in England and Wales, these are:

There are two types of deposit protection available: custodial or insured. The deposit is held for free by a custodial scheme, but in an insured deposit scheme, the landlord or letting agent holds the deposit in a ring-fenced bank account as a “stakeholder”, and payment is made to one of the schemes to "insure" this money. In England and Wales, the Deposit Protection Service (DPS) and the Tenancy Deposit Scheme (TDS) are two schemes that hold money. In Scotland, all deposit schemes are custodial schemes and are free to use.

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Rules of deposit protection

The landlord must register the deposit within 30 business days of receiving it from the tenant, and they must inform the tenant of some vital information, which is called "prescribed information":

  • The address of the rented property

  • How much deposit you’ve paid

  • How the deposit is protected

  • The name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service

  • Their or the letting agency’s name and contact details

  • The name and contact details of any third party involved in the payment of the deposit (i.e. parents)

  • Under what circumstances would they keep some or all of the deposit

  • How to apply to get the deposit back

  • What to do if they can’t get hold of the landlord at the end of the tenancy

  • What to do if there’s a dispute over the deposit


If the landlord does not protect the security deposit 

Registering a tenant's deposit is a legal requirement. If a landlord doesn't protect a tenant's deposit, they could be fined up to three months' deposit and they may not be able to give a correct Section 21 notice in order to regain possession of the property.

If you're not sure if your deposit has been protected, you can ask any of the tenancy deposit schemes or check on their websites. You will need to know the full amount of the deposit - which you can calculate as 5 x weekly rent, surname, and property address.

  • Deposit Protection Service: 0330 303 0030 

  • Tenancy Deposit Scheme 0300 037 1000 

  • MyDeposits: 0333 321 9401

A tenant or any "relevant person" (someone who paid the deposit) can ask the county court to make a landlord or letting agent pay money if they haven't done what they were supposed to do under the Tenancy Deposit Protection Act, within the relevant time limits.  A section 214 claim should be filed within 6 years of when the ‘cause of action’ happened by using Court Form N208 under Part 8 of the Civil Procedure Rules, as changed by Part 56. 

What a judge can rule:

  • Order the landlord or letting agent to pay the tenant or "relevant person" a sum between one and three times the amount of the deposit paid, and

  • If the tenancy hasn't ended at the time of the hearing, it must order the landlord/agent to return the deposit to the tenant (or "relevant person"), or pay it into an authorised scheme within 14 days.

  • In order to decide on the amount of the reward, the courts are likely to look at whether the landlord: should have known their responsibilities; have acted in bad faith; has taken steps to fix the fact that they didn't meet their responsibilities

  • The landlord can not serve a valid section 21 notice if: the deposit wasn't protected within 30 days; the deposit isn't protected by an authorised scheme; the tenant (and anyone else who needs to know) hasn't been given all the required prescribed information; or the deposit isn't money, but something else

What happens at the end of the tenancy?

At the end of the tenancy, the landlord must notify the tenant of any deductions they feel should be taken from the deposit - usually, this is based upon inventory documentation - and there would be a clause in the tenancy agreement stating what deductions could be made, such as:

  • Outstanding rent 

  • Unpaid bills 

  • Damage to the property 

  • Indirect damage due to the tenant’s negligence

  • Damaged or missing contents (e.g. furniture supplied by the landlord)

  • Returning the property in a dirtier condition than at the commencement of the tenancy

  • Leaving unwanted belongings at the end of the tenancy

  • Items not returned to the correct position as they were at the start of the tenancy, which might warrant a contractor visit

  • Not replacing blown light bulbs, as this could result in a call-out charge for someone to attend the property

During a tenancy, landlords are required by law to keep the property in good shape. All maintenance and repair costs can't be down to the tenant. General maintenance of the building's structure (roof, walls, drains) and key features (like heating, electrics, sanitary wear) is the landlord's job and the cost of these works cannot be taken out of the security deposit. 

However, tenants do have a duty to take care of the property in a "tenant-like" manner and this means that they have to carry out small jobs such as de-fluffing the tumble dryer, bleeding the radiators, descaling the sinks, changing fuses and light bulbs etc. Tenants also have a legal responsibility to tell the landlord about any problems before they get worse or they can be charged for “permissive waste” - the cost of works which are required because the problem was not reported soon enough.

Once the landlord and tenant have agreed upon the amount of money to be retained from the deposit, the landlord has 10 business days to return the deposit to the tenant. The landlord cannot deduct any money from the security deposit under an assured shorthold tenancy, without the express permission of the tenant. If an agreement cannot be reached between the parties, the non-disputed amount of the deposit should be returned, and the disputed amount will go to the independent adjudication process of the relevant tenancy deposit scheme, in accordance with their regulations. This service is free of charge and the independent case examiners will rely heavily on the inventory, schedule of condition and check-in / check-out documentation and mid-term inspection reports. The decision made by the scheme is final but landlords or tenants can take the matter to the county court if unhappy with the outcome.

Alternatives to Tenancy Deposit

There are alternatives available to a traditional security deposit:-

  • The landlord can forego asking for a deposit, it doesn’t happen often but there is no legal responsibility for a landlord to take a security deposit if they do not wish to do so.

  • There are also ‘zero deposit’ guarantee policies on the market. These are usually schemes whereby the tenant pays for an insurance policy (typically the cost is one week’s rent plus a small monthly payment). At the end of the tenancy, if there are no damages or unpaid rent, then the guarantee will end and no further action is required. If there are any damages or unpaid rent at the end of the tenancy, the tenant will still be liable to pay for them. Any disputes that can’t be resolved with the landlord will be referred to TDP for adjudication.