Dealing with Deposits, Disputes & Damages

• General
  
  
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    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.

    
    
  
  
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    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.

    
    
  
  
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    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: -
  
  
  1. The original age, quality and condition of any item at commencement of the tenancy
  
  
  2. The average useful lifespan to value ratio (depreciation) of the item
  
  
  3. The reasonable expected usage of such an item
  
  
  4. The number and type of occupants in the property
  
  
  5. 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.