What Happens To The Tenant’s Deposit Once It Has Been Received?

Once you have accepted an offer from a tenant and the rental process is underway, they will need to pay a security deposit.
The purpose of a deposit is for the tenant to demonstrate their commitment to renting the property, as well as providing you with additional protection.
At the end of the tenancy, you are eligible to make deductions from the deposit for damage and missing items which don’t constitute ‘fair wear and tear’, as well as any unpaid rent.
Since 2019, security deposits for new tenancies have been capped at an equivalent of five weeks’ rent for properties with an annual rental cost under £50,000 (the cap increases to six weeks for properties above this threshold).

What should I do when I receive a deposit?

Once you have received the deposit from the tenant, you have 30 days to protect it in one of three government-approved tenancy deposit schemes (The Tenancy Deposit Scheme, The Deposit Protection Service or mydeposits).
The deposit must then remain protected for the duration of the tenancy.
Once the deposit has been protected, you must provide renters with the following information:
– Your (or your agent’s) contact details
– The details of the protection scheme you are using
– The property address and deposit amount
– How to use the deposit protection scheme’s dispute resolution service
– When the deposit will be returned and when deductions can be made
– What to do if they can’t get hold of you at the end of the contract

How does deposit protection work?

There are two types of deposit protection available to landlords. Insured schemes allow you to keep hold of the deposit in a ring-fenced account for the duration of the tenancy for a small cost.
Meanwhile, a custodial scheme sees the landlord pay the deposit directly to the deposit protection scheme, which will then hold the deposit throughout the tenancy.
Custodial schemes are free, but require a bit more administration and can take longer for the deposit to be released at the end of the contract.
Whatever option you choose, if there is a dispute over deductions at the end of the tenancy, the deposit protection scheme’s dispute service will step in to resolve any issues.

Why compliance with deposit protection is so important

Throughout the tenancy, the deposit remains the tenant’s money, so it is vital they are provided with the necessary protection.
What’s more, if you don’t follow deposit protection rules to the letter, you could receive a financial penalty.
There are also consequences relating to regaining possession of your property. If a deposit has not been protected or was protected too late, you won’t be able to serve a Section 21 eviction notice.
The same applies if you don’t provide all the written information outlined above to renters after their deposit has been protected.
Deposit protection is an important part of a rental transaction and, provided you stay on top of the rules, is usually a smooth process.
That said, it is another layer of administration that you need to consider with serious consequences if the rules aren’t followed properly.
By working with a local letting agency, you can ensure that all your deposits are protected properly. Not only does this save you time, it provides you with the confidence and protection you need to let your property successfully.
If you require any further information on how the deposit protection process works, a member of our team would be delighted to advise you.