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Tenancy deposits - solving disputes

3-minute read

Josh Hall

Josh Hall

10 August 2010

Disputes over deposits are a landlord’s nightmare. It is common for tenants to feel that they are being ripped off when a landlord retains part of a deposit, and these arguments can often escalate.

It is important that you understand how to deal with disagreements over tenants’ deposits, and that you are fulfilling your legal obligations.

When might a dispute arise?

Deposits are taken in order to protect the landlord; they are designed to ensure that any damage caused to the property during the tenancy (over and above wear and tear) is paid for by the tenant. Of course, when tenants find that they are having their money taken by their landlord, arguments often begin.

Disputes over deposits can arise in a wide range of circumstances. Disputes are most commonly caused when tenants believe they are being overcharged for damage to the property – or that they should not be charged at all.

Arguments may also be caused by a landlord’s failure to return a deposit in a timely manner. This can make life very difficult for tenants, who may be relying on the cash to pay their next deposit.

What are the protection schemes?

In an effort to protect tenants from ‘rogue’ landlords, the law now requires that deposits be protected in one of the government mandated deposit protection schemes. The landlord has some discretion over the scheme used, but they must lodge the money with one of two types of scheme.

  • Custodial schemes. Under this arrangement the landlord pays the tenant’s deposit directly into the scheme. The scheme operator keeps hold of the money until they are told how much to return and to whom. In the event of a dispute the scheme operator will keep the deposit until a resolution has been reached.
  • Insurance based schemes. Under this arrangement the landlord keeps hold of the deposit, but pays the scheme a premium. In this way the tenant is insured against the possibility of the landlord failing or being unable to return the deposit at the end of the tenancy. In the event of a dispute the landlord is required to give the full deposit to the scheme operator until a resolution is reached. If they fail to do so, the operator will see that the deposit is returned to the tenant.

What is Alternative Dispute Resolution?

Disputes over tenancy deposits are increasingly resolved through Alternative Dispute Resolution (ADR). This means that disputes are mediated by an independent body, rather than going to court. Indeed, in many areas of the law it is now required that some form of ADR is attempted before a case comes to court.

Tenancy deposit schemes now include ADR as part of their service. If there is a dispute over the deposit, the adjudicator will read written evidence from the landlord and the tenants. They will then come to a decision – which is normally binding on all parties.

It is important that you understand the nature of your agreement with your chosen deposit protection service. If you sign up for a service that gives binding decisions, you will not be able to challenge these decisions in court if you disagree.

What are my other options?

Disputes over deposits can often be solved without the need for either ADR or the courts. Instead, arguments are often resolved through direct contact between the landlord and tenant.

In the first instance you should try to negotiate a mutually acceptable solution. This might involve you compromising on the amount you believe you are entitled to. Remember, though, that negotiating with your tenant does not preclude you from using ADR if an acceptable compromise cannot be reached.

What if I don't protect the deposit?

Landlords have a legal obligation to lodge their tenants’ deposits with a recognised protection scheme. If you fail to do so, you risk incurring a significant financial penalty.

If you fail to protect a deposit, the tenant can make a complaint to the county court. The court will then order you to pay the tenant a sum equal to three times the initial deposit. It is therefore imperative that you properly protect deposits.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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