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General
-
Any tenancy agreement should include a clause
that specifies how the deposit is to be held, who by and who is entitled to
any interest which may be earned on it. (Where a deposit is held by a third
party as stakeholder, case law has determined that that party is entitled to
retain any interest accrued). The agreement should include details of how
the deposit will be dealt with at the end of tenancy, including the
circumstances or criteria or procedure for its refund.
-
The deposit remains the tenants’ money at all
times during the tenancy and should not be used to subsidise either the
landlord’s or the agent’s outgoings or expenditure other than by specific
mutual agreement (with the tenant) or by express provision of a clause in
the tenancy agreement.
-
A deposit held by an agent “as agent for the
landlord” has, ultimately, to be refunded or apportioned on the landlord’s
instructions or by the agent under his authority as a contracted Agent on
behalf of, a Principal (the landlord client). Every reasonable endeavour
should be made by the agent to ensure that this process is fair and
equitable and supported by appropriate documentation so that a landlord (or
his agent) does not take unlawful advantage.
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A deposit held by an agent “as stakeholder
between the parties” is being held in a quasi-trustee position on behalf of
both parties. Whenever possible the agreement of both parties should be
obtained (in writing) as to how the deposit is to be disbursed. In the event
of a dispute the agent as stakeholder is entitled to retain the deposit (or
the disputed part of it) until the dispute is settled. Every reasonable
endeavour should be made to ensure that this process is seen to be fair and
equitable and supported by appropriate documentation. Ideally, the relevant
deposit clause of the tenancy agreement should include a provision or
options for an unresolved dispute to be referred to a Dispute Resolution
Scheme, such as or Expert Adjudication or Arbitration. Ultimately however, whilst potentially risky*(see below), if
after exhaustive attempts to resolve the dispute equitably it is considered
by the stakeholder that one party is taking a wholly unreasonable position
and it would thus be unfair to the other party to retain the deposit, an
agent could advise both parties and distribute the deposit as the agent as
stakeholder considers appropriate, taking account of, and supported by,
appropriate evidence. (*Important. This could lead to legal action directly
against the agent by a dissatisfied party who can prove that the agent, as
“trustee”, has acted
Procedures, Documentation
& Communications
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Make sure that, at commencement of a tenancy,
any Inventory/Schedule of Condition provided is sufficiently detailed,
legible, clearly set out and up to date to allow it to be used as a fair
measure at the end of the tenancy.
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Do the final check-out as soon as is
reasonably practical after the tenants vacate at the end of the tenancy,
preferably during daylight hours; it is essential that the checkout is done
thoroughly and a sufficiently detailed summary report prepared of any
alleged discrepancies or differences against the ingoing Inventory.
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Irrespective of how a deposit has been held,
make sure that communications are conducted promptly, regularly, rationally,
politely and fairly, as appropriate, during negotiations after the end of
the tenancy. Confirm pertinent details in writing and provide copies of
relevant significant information and supporting documentation.
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Ensure that any instructions to
contractors/suppliers and, subsequently, contractors/suppliers
quotes/receipts provide a sufficiently detailed breakdown to clarify
precisely what work is to be/was carried out in which areas of a property.
It is then simple for all parties to assess & understand what portion of the
work and costs can lawfully be allocated to the tenants in the light of the
inventory checkout report or tenancy agreement obligations. This helps avoid
accusations of betterment against the landlord.
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Wherever practical, once proposed deductions
have been initially discussed, allocate and pay over to the relevant party
any amount/portion of the deposit that is not subject to a dispute, as soon
as possible
Fair wear and tear – this
means making an allowance for: -
-
The original age, quality and condition of
any item at commencement of the tenancy
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The average useful lifespan to value ratio
(depreciation) of the item
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The reasonable expected usage of such an item
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The number and type of occupants in the
property
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The length of the tenants occupancy
It follows therefore (and is an established
legal tenet) that a landlord is not entitled to charge his tenants the full
cost for having any part of his property, or any fixture or fitting,
“…..put back to the condition it was at the start of the tenancy.”
Beyond fair wear and tear – the principles of remedy
The landlord/agent has a duty to adopt the most reasonable
and practical and appropriate approach to assessing remedy, and should keep
in mind that the tenants’ deposit is not to be used like an Insurance policy
where you might get "full replacement value" or "new for old"
The appropriate
remedies available to a landlord might range from or include :
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Replacement of the damaged item where it is
either severely and extensively damaged beyond economic repair or, its
condition makes it unusable
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Repair or Cleaning
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Compensation for diminution in inherent value
of the item or the shortening of its useful normal lifespan
Remember, the landlord/agent has a duty to
adopt the most reasonable and practical remedy.
Avoiding Betterment & Considering
Apportionment
The landlord
should not end up, either financially or materially, in a better position
than he was at commencement of the tenancy, or than he would have been at
the end of the tenancy having allowed for fair wear and tear.
To avoid betterment, the allocation or apportionment of any costs, charges
or compensation for damage must take into account all the factors relating
to
(a) fair wear and tear,
(b) the most appropriate remedy and,
(c) that the landlord should not end up either financially or materially in
a better position than he was at commencement of the tenancy or as he would
expect to be at the end of the tenancy having considered (a) and exercised
(b).
The principles of some very
general examples might include
1. A small to medium stain or mark
on a carpet or mattress – perhaps £15 - £35 e.g. the cost of a “spot” clean
or, this amount as the tenants’ contribution to a full clean of the whole
item, or as compensation for the diminution. A small to medium size chip or
mark, scratch or burn on a kitchen worktop - perhaps £5 - £25. A landlord
could of course decide to have a new carpet put down or a new kitchen
worktop installed if they wished, but, they cannot lawfully charge the
tenant for that full cost. The costs should be apportioned and shared
between landlord and tenant on the principles given above. E.g. Cost of new
carpet £500 – apportioned £465 to landlord, £35 to tenant.
2. In the rare circumstances where damage (to the
worktop/carpet/mattress) is so extensive or severe to the item so as to
affect the achievable rent level/lettability or quality of the property the
most appropriate remedy might be to apportion costs according to the age and
useful lifespan of the item. An example of how this might be calculated is
as follows:-
| (a)
|
Cost of
similar replacement carpet |
£500-00
|
(a)
|
| (b)
|
Actual age of
existing carpet |
2 years
|
(b)
|
| (c)
|
Average
useful lifespan of that type of carpet |
10 years
|
(c)
|
| (d)
|
Residual
lifespan of carpet calculated as (c) less (b) =
|
8 years
|
(d)
|
| (e)
|
Depreciation
of value rate of carpet calculated as (a) divided by (c) =
|
£50 per
year |
(e)
|
| (f)
|
Reasonable
apportionment cost to tenant calculated as (d) times (e) =
|
£400-00
|
(f)
|
This method of calculation could, (with a minor downwards
adjustment to (c) to take account of the existence of more than average use
of the carpet/item e.g. its useful lifespan had already been shortened prior
to the tenancy in question.), be used to apportion costs of a carpet/item
which had already or previously suffered excessive deterioration.
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