Introduction
Most know security deposits as what a landlord charges at the start of a tenancy in case something were to go wrong or a tenant damages a property. But in fact, there are a lot more reasons for taking security deposits and there are requirements and schemes that regulate them.
Being ignorant of how they work can cost you as a tenant because you could be overcharged at the start of your tenancy or made to pay for things unlawfully. On the other hand, for a landlord, you could end up in legal trouble by withholding a security deposit unlawfully or charging for things that are not permitted under UK legislation.
In a tenancy, what is a security deposit?
A security deposit is a lump sum of money kept by the landlord in order to safeguard them against the tenant damaging property or protect them in case there are things that are unplanned like rent arrears from the tenant.
The deposits are paid back to a tenant if they treat the property well and comply with the terms of their tenancy agreement. Often, a deposit is a great incentive for a tenant to look after a property and pay their rent on time as they know that if they don’t the deposit may be kept by the landlord.
As you can imagine, whether to withhold a deposit or not can be seen as a subjective decision. This is why there must be regulations around the topic like requirements for a security deposit and where these deposits must be kept so the landlord and tenant both have rights if either party thinks they should have access to it.
You must also make sure you are abiding by the rules specific to the country you’re in as laws can change in Northern Ireland and Scotland.
What is a holding deposit?
You may be confused as to what the difference is between a security deposit and a holding deposit. The answer is a holding deposit is a fee that a tenant has to pay in order to reserve a property to move into. This is paid directly to the landlord or letting agent.
The person responsible for the property you are moving into will then conduct tenancy referencing on you such as credit checks, and bank statement history as well as making sure the form of employment you have is as you say it is. From here, the tenant will then be disapproved or approved to move in.
Either way, after the decision, is made the holding deposit will be returned to the tenant as they move in. However, they may then need to pay an additional security deposit as well if they do start living in the property. This decision should take a maximum of 15 days before the tenant gets their money back.
How much can you charge for a security deposit in the UK?
The rules around how much a security deposit can be are the same for any type of tenancy including students in university halls assured tenancies and lodgers. This figure is usually 5 weeks’ rent. Under the tenant fees act, it is stated that a landlord must refund the amount paid by a tenant over 5 weeks if the landlord charged more than 5 weeks of rent, to begin with.
These changes came into effect in June 2019 here. They state that the only costs a landlord can charge a tenant are their rent, a security deposit, a holding deposit, charges associated with leaving a tenancy early, utility bills or other fees to do with changing a tenancy or losing keys associated with the property.
All of these things must be agreed on in the tenancy agreement and written down so the tenant is informed. Otherwise, if they are only communicated verbally, it may become hard for a landlord or tenant to provide evidence that these rules were there, to begin with, if there was a dispute that resulted in court action.
What is a deposit dispute?
A deposit dispute is where a tenant feels they have the right to keep their deposit but the landlord doesn’t in these examples, the result of where the security deposit ends up must be decided in a small claims court. This can be done by a tenant or a landlord filling out a form for court action and posting it to their local court. Forms to bring a landlord to court in the UK can be found here.
However, if a security deposit is protected in a tenancy deposit scheme, there are free resolution services for tenants in order to gain their deposit back. This is one of the main benefits of tenancy deposit schemes and one of the reasons why they were made mandatory in certain tenancy agreements in the first place.
A tenant who is able to freely contest the withholding of a deposit has more rights and is able to challenge anything a landlord does without feeling like they will just withhold the deposit for making a landlord conduct extra work. This can encourage tenants to communicate with their landlords more to do with anything such as building safety or tenancy disputes.
In order to make a complaint, a tenant can contact the tenancy deposit scheme that the deposit was given. Most tenants would have their tenant protected with the Tenancy Deposit Scheme (TDS) which can be found here.
Others may be using MyDeposits which can be found here or Deposit Protection Service which can be found by clicking this link to the website here.
What are the security deposit requirements?
In order to charge a tenant with a security deposit, a landlord must follow the rules of providing the tenant with notice of where and how much of the deposit is protected and what scheme the deposit is protected with.
This helps the tenant know where their money is in the event they have to contact one of the schemes in order to protest a landlord keeping a deposit in a security deposit dispute.
Furthermore, the landlord must show this in written evidence and they must make sure the security deposit is no more than five weeks of rent and the deposit is less than £50,000. This would only be true for buildings with rents that are extremely high (over £10,000 per week).
In order for a landlord to comply with regulations to make the security deposit legitimate, the landlord has 30 days to let the tenant know what tenancy deposit protection scheme the security deposit is being protected under. Although these laws are slightly different in Northern Ireland.
What do tenants need to know about security deposits?
Tenants should be aware of how long it should take for a landlord to provide them with evidence that their security deposit has been protected. In addition, they must know about the details of the deposit in order to keep track of how much a deposit has been repaid.
Further to this, it would be a good idea for a tenant to know what they would have to do as part of their tenancy agreement in order to keep the deposit when they finish their tenancy. This may include taking care of the property so there is no damage when they leave.
Or it could also entail them not being allowed to have pets in the property as these are seen to have an additional risk of damaging the property. However, some landlords will charge an additional security deposit called a pet deposit if there are animals living in a property who are deemed as risky to the home.
This would result in the landlord having to spend additional money cleaning the house for the next tenant or for whatever they want to do with the house. Examples include getting rid of pet hair or removing fleas from the house in order to live in the building safely again.
However, smaller animals like hamsters or birds will likely not be required to have a pet deposit. Only larger pets like dogs or cats.
What is mandatory deposit protection for tenants?
Mandatory deposit protection refers to new laws from the Tenant Fees Act (TFA). This piece of legislation protects tenants who are in assured tenancies from having a deposit unlawfully withheld.
This is because if the security deposit has to be protected in a tenancy deposit scheme, the tenant automatically has more rights and is able to protest any changes the landlord makes to a tenant’s deposit without having to take them to court as the process around challenging a landlord is free of charge.
How can a tenant avoid a deposit dispute and get the full deposit back?
Sometimes, a tenant is able to avoid the dispute of a deposit without having to take any legal action. Usually, this is because they stay up to date with the terms of their tenancy agreement and consistently are aware of how much of the deposit is owed to them from the landlord.
For example, a landlord can say that they are keeping a part of the tenant’s deposit but if the tenant knows that there is no good reason because of this, as a result, they can challenge a landlord there and then which makes them limited in what action they can take.
Specifically, if a tenant knows what damage was in the property to begin with and they are able to provide evidence that this damage is the same as when they left the property. This would be a good reason for a tenant to be able to refuse the landlord from keeping the deposit.
How do security deposits differ throughout the UK?
In the UK, there are different regulations depending on what country you live in. This means the reason that a landlord can keep a deposit also varies so it is important to read into legislation a bit further if you live in Scotland or Northern Ireland. The rules are the same in Wales and England.
What are the security deposit rules in Scotland?
There are some different deposit protection schemes in Scotland. These are the Letting Protection Service of Scotland, My Deposits Scotland and the Safe Deposits Scotland. This is different to the schemes in England and Wales.
In addition, Scottish landlords can also charge more for security deposits. Instead of 5 weeks’ worth of rent being the total amount of rent to be charged for a security deposit, in Scotland, it is two months’ worth making a landlord eligible for more money upfront.
What are the security deposit rules in Wales?
Tenancy protection is quite new to Northern Ireland as they were only introduced in 2013. Again, like Scotland, the tenancy protection schemes are different to those in England. These schemes are the Dispute Service NI, My Deposits Northern Ireland and the Letting Protection Service Northern Ireland.
Further to this, a landlord also has 14 days as opposed to 30 days before a security deposit has to be protected.
In summary
When looking at security deposits, it is clear that the failure to regulate them in the right way can be costly for landlords as they could end up in court or have tenants demand they pay the compensation. However, the same is also true for tenants, failure to know the laws around security deposits could lead to them allowing a landlord to unlawfully keep part or all of a security deposit.
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