Stephanie Robinson answers your questions

Stephanie Robinson.
Stephanie Robinson.
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Deposits are one of the issues most often questioned by landlords. In this month’s column, Stephanie Robinson runs through the best ways to handle and return a bond, to keep property owners on the right side of the law…

What constitutes a rent deposit?

Generally, a deposit is recognised as a lump sum, often described as a bond, that tenants pay before keys to a rental property are handed over.

Deposits are most commonly taken by landlords entering into an assured shorthold tenancy. They can, however, come in different forms.

Any money taken by or for the landlord as security against the tenant’s liabilities will constitute a deposit and must be protected in a government approved scheme. This includes:

1. A ‘cleaning fee’ paid by the tenant in advance and repaid at the end of a tenancy if the property is left in a reasonable condition.

2. Additional money charged as rent each month, which is offset against the potential costs of cleaning and repairs.

This is still classed as a deposit, even if it is not described as such, if there is clear provision for it to be repaid at the end of the tenancy.

Is advance rent classed as a deposit?

It used to be accepted that to charge advance rent at the start of an assured shorthold tenancy would not be considered a deposit. This was because advance rent was ‘used up’ as it fell due and the tenant would not have to make any further payments to cover the equivalent period.

A landlord does not have the right to use this money to cover anything but rent. However, an unreported case heard in Grimsby County Court – Piggot v Slaven, April 2009 – found that, whilst each situation should be considered on its own merits, asking a tenant to pay money, which was to be held against rent due in the last two months of the tenancy, was in effect a requirement to pay a deposit.

If rent paid in advance can be treated as a deposit, it will cause a problem for landlords who find themselves at risk of a fine or unable to take possession of their property if they fail to protect the money.

Unfortunately, drawing down rent paid in advance from a tenancy deposit scheme would also be administratively complicated.

How do I handle a dispute over a returned deposit?

Findings from one of the largest tenancy deposit schemes revealed that the majority of tenancies end without issues surrounding the bond. Last year, approximately 99% of its members returned deposits in full or with deductions agreed by the tenant, without involving the scheme’s administrators. This is positive news for both landlords and tenants.

The scheme noted that landlords should encourage tenants to read their rental agreement and inventory carefully, as they contain essential information about the condition of the property and the reasons why deductions may be made.

If you are unable to reach an agreement about the return of a bond, communication is the most effective way to find a resolution and guides to negotiation can be obtained from some of the approved schemes.

Is there an alternative to taking a deposit?

In my opinion, taking a deposit is the best form of protection against damage to your property, but if you are set against doing so, you could impose an administration fee.

This non-refundable charge covers, for example, the following-up of references and the preparation of tenancy agreements. If it is described correctly, then it does not fall under the protection of the tenancy deposit schemes.

In cases where the courts felt landlords misrepresented the payment, it was deemed the money could be treated as a deposit.

If you intend to take an administration charge, I recommend wording your tenancy along the following lines: “An administration charge of £xxx is payable. This is a charge, which is made for taking up references and preparing and completing the tenancy agreement.

“It is not refundable. Instead it is a charge which we make. It is therefore not a tenancy deposit. It will not be paid back to you when the tenancy ends.”

Stephanie Robinson is a solicitor specialising in property and commercial litigation at Sheffield’s Taylor&Emmet LLP. Call 0114 218 4000 or visit www.tayloremmet.co.uk and www.landlorddisputes.co.uk.