Deposit disputes and resolution

 

One of the most contentious areas of the letting industry surrounds the issue of deposits, most notably their fate once the tenancy draws to an end. The average deposit is now over £1,000 (mydeposits.co.uk), with London rates even reaching around 50 per cent more. This is a lot of money, especially for those tenants who have already paid out a great deal to secure their next home in fees, deposits and advance rent.

This means that the issue of reclaiming deposit can become a rather heated one, with so much cash riding on the outcome.

Tenancy Deposit legislation

Since 2007, tenants have been protected from unscrupulous landlords charging excessive amounts thanks to the introduction of tenancy deposit legislation. Quite simply, the law stated that deposits must be held by an independent third party, with it only being paid back to the receptive parties once an agreement had been reached on how it should be divided up.

This agreement means all of the money can go one way (either to the tenants if there was no problem with the property, or the landlord if it was left excessively damaged), or it can be divided up between the two; depending on how much was needed to repair small levels of damage.

These schemes didn't simply hold deposits and divide them up accordingly, however, but also review their practices on a regular basis in order to ensure their practices remained transparent, fair and up-to-date.

The Citizens Advice Bureau

The industry is also governed by the Citizens Advice Bureau (CAB), in a bid to nudge the largely-unregulated industry into adopting processes to make everything, quick, easy and fair for all involved.

One such suggestion was to ensure deposits were returned to the tenant within 10 days, provided the two parties agree on how the money should be divided. To do this, both the landlord and tenant will need to submit information to the deposit holder announcing the terms they have agreed on. Provided both match up, the money will be divided accordingly then released to the relevant bank accounts.

In the case of a dispute, however, the deposit scheme will retain the entire amount until a resolution is reached.

Not all deposits need to be kept in the aforementioned schemes, however, as there is another way for it to be handled: the insurance method.

In this case, the landlord keeps the money themselves, but still pays in an insurance to the deposit protection scheme. If there was a dispute in this instance, the landlord would need to immediately pay back any excess money that isn't disputed, with the remainder left over until the decision is resolved. For example, if £150 of a £1,000 deposit is under question, the landlord must pay back the other £850, while the remainder is disputed.

If the dispute goes on and the landlord has not paid what they should have, the insurance scheme will pay out on their behalf.

CAB has also stated what the landlord is allowed to charge for and what they are not. For example, any items included in the inventory which have since gone missing can be included, as can excessive damage to any furniture provided or the property itself. That which is deemed to be 'fair wear and tear', however, cannot be accounted for as this is unavoidable when renting out a property, especially where long-term lets are concerned.

Despite there being all these measures in place, disputes still occur, where landlords and tenants strongly disagree over the amount of damage, its perceived cost to repair, or both. In this case, a service has been set up in order to mediate between both parties to try and reach a resolution instead of taking the issue all the way to court.

ADR

The Alternative Dispute Resolution (ADR) service acts in a similar way to the court, but without much of the cost or pressure. It works by hearing the arguments from both sides, before deciding on a verdict which determines where the money should go. Once this decision has been made, it must be stuck to, meaning the losing party cannot then take the issue to court. To use the ADR service, however, both landlord and tenant need to agree to it. If one declines, the issue can then be taken to the courts.

The danger of unprotected deposits

Despite it now being a legal requirement for landlords to offer some form of independent, third-party protection for all their deposits, there is still the chance they could not do it. In this case - or even if the landlord cannot provide satisfactory evidence that they have protected the deposit - tenants are allowed to take them to court. In this instance, however, tenants are urged to exhaust all methods of communication to get information on their deposit before taking the legal route - as it could be long and costly if unsuccessful.

The case may not just be about protection or proof thereof, but can also concern the time in which it was done. Landlords must now protect deposits within 30 days of signing the shorthold tenancy agreement. So, if 30 days have elapsed and a tenant enquires into the status of their deposit, the landlord cannot simply rush it into a holding scheme as it will have surpassed the deadline.

In the event of a court case, landlords can be charged between one and three times the full amount of the deposit, if they are found to be guilty. If a deposit has since been protected but wasn't within the 30 days, a fine would still typically be issued, although will probably be toward the lower end of the spectrum.

These recently-introduced measures have made the deposit-holding process more regulated and put measures in place to protect tenants from potentially losing hundreds of pounds. Whilst it's still impossible to fully protect oneself against rogue landlords, these measures have made it easier for tenants to challenge landlords and ensure they get a fair percentage of their deposit back at the tenancy's end.

Author: Properties ABC