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.
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":
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.
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:
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:
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:-