This article from Lawpack's Residential Lettings Kit discusses how to the tenant's damage deposit and and how to administer it at the end of the tenancy.
It is normal for the landlord to take a damage deposit, to hold until the end of the tenancy, which he can use to pay for any losses he suffers, e.g. if items are lost or broken. The damage deposit is normally equivalent to one month's rent. It should not be more than two months' rent or it will be deemed to be a 'premium'.
The damage deposit and disputes about its return are common flashpoints between landlord and tenant. Having a detailed inventory is also important here. Landlords should note that they are not entitled to withhold any of the deposit in respect of fair wear and tear.
You should always keep the damage deposit separate and not credit it against rent payments during the tenancy. At the end of the tenancy, the damage deposit should be dealt with as follows:
- deduct the cost of any replacements, repairs and cleaning, i.e. the items you are entitled to use the damage deposit for;
- then deduct any outstanding rent arrears;
- the balance (if any) should then be returned to the tenant.
You should not delay returning the damage deposit to the tenant.
Where a dispute does arise about deductions from the damage deposit, the landlord is initially in a stronger position, as he already holds the deposit money. However, it is wise to adopt a conciliatory approach and to be as fair and reasonable as possible.
Landlords should be aware that if a committed tenant takes the matter to court, the court will often treat the tenant's argument more favourably. To protect his position therefore, it is a good idea for the landlord to take photographs of (or even video) damage done to the property and/or furniture, and to keep all invoices and receipts for cleaning, repairs and replacement items (a camera which dates the photograph will disprove any claim by the tenant that the damage was done to the property after his departure).
These can be used as evidence in any court proceedings, either by way of defence to any claim by the tenant for the return of the deposit, or by way of a claim against the tenant for any losses not covered by the deposit.