A Landlord’s Guide to Calculating Deposit Deductions

As a landlord, dealing with deposit deductions is a sensitive yet crucial part of tenancy management. Ensuring deductions are calculated fairly and transparently not only upholds your legal obligations but also maintains a professional relationship with your tenants. This guide outlines how to handle deposit deductions fairly, including the importance of custodial deposit schemes, how to calculate charges using depreciation formulas, and best practices for collecting and presenting evidence.

The Role of Custodial Deposit Schemes

Under UK law, landlords must lodge tenancy deposits with an approved custodial deposit protection scheme, such as the Deposit Protection Service (DPS), Tenancy Deposit Scheme (TDS), or MyDeposits.

If a deduction is disputed by the tenant, the custodial scheme facilitates dispute resolution through an impartial adjudicator. The adjudicator reviews the landlord’s evidence and determines whether the charges are reasonable.

Given this process, it is essential to calculate fair deductions from the outset and to maintain thorough records to support your claims.

How to Calculate Fair Deductions

1. Depreciation Formula

Depreciation essentially estimates the amount of time a tenant has deducted from the items lifetime due to damages, extreme wear or that similar. This method can be applied to:

• Carpets

• Windows

• Doors

• Kitchen appliances

• Furniture

Here’s an example formula:

2. Like-for-Like Replacements

Always obtain multiple quotes and choose a replacement that matches the original item's quality. Charging for higher-quality replacements is not permitted. For example, if a tenant damages a standard carpet, replacing it with a luxury carpet and charging for the difference would likely be rejected by the adjudicator.

3. Minor Items

For simple items such as:

• Plug sockets

• Missing light bulbs

• Radiator caps

Charge the depreciated value of a second-hand replacement, this is because if the tenant damage or lose the item you would not have charged for it and we would accept it in its used state, we aren't charging for a new item we are charging for an undamaged used item. A simplified formula might be:

This accounts for the fact that the replacement should reflect the used state of the item at the time of damage.

Best Practices for Evidence Collection

1. Inventory and Check-Out Reports

   A detailed inventory report at the start of the tenancy and a thorough check-out report at the end are indispensable. They serve as proof of the property's condition before and after the tenancy.

2. Photographic Evidence

   Take timestamped photos or videos to document damages. This visual evidence can be critical in supporting your claims.

3. Quotes and Invoices

   Secure multiple quotes for repairs or replacements and retain the invoices. This shows you have pursued the most reasonable option.

4. Communication Records

   Inform tenants of the deductions, provide a breakdown, and keep a record of your discussions. Adjudicators appreciate attempts to reach a resolution directly with tenants before escalation.

Engaging with Tenants

Whenever possible, attempt to agree on deductions directly with tenants. This avoids lengthy delays in claiming money through custodial schemes. According to scheme statistics:

• DPS disputes can take 8-10 weeks to resolve.

• TDS reports an average resolution time of 6-8 weeks.

• MyDeposits disputes may take 7-12 weeks, depending on complexity.

  However it is not uncommon for disputes to last up to 6 months and in many cases even the 'due deadline date' can be extended by the adjudicator.

Transparent communication with tenants can expedite this process and foster goodwill.

Final Thoughts

Fair and reasonable deposit deductions protect your interests while maintaining trust with tenants. Following best practices, such as using depreciation formulas, collecting robust evidence, and communicating clearly, ensures a smoother resolution process.

By adhering to these guidelines and complying with custodial scheme rules, you’ll be well-prepared to handle disputes effectively and maintain a professional approach to property management.

Contact us or advice or support.