How A Rental Deposit Is Handled Start To Finish

You find a place to live. You decide to talk with the landlord and find out how much rent you'll have to pay each month along with other particulars about the rental unit. You decide you'd like the place, fill out the paperwork and then your "potential" landlord asks for the deposit?

What's a deposit? It's money that you will give to the landlord at the very beginning of your lease. It's security money for your landlord that could be used in case you fail to pay a month's worth of rent.

Residential Protection

Regulations are in place to protect residential unit deposits that tenants hand over to their landlord. For this to happen, landlords have to join and abide by the regulations set forth by the Tenancy Deposit Scheme. Failure to do so allows a tenant to sue the landlord for three times the rent deposit value.

Commercial Protection

Currently, there is no protection on commercial property. Landlords, who rent out commercial property, can and do use your deposit for other reasons. Are you concerned what your landlord will do with your deposit?

This is when you need the landlord's rights and obligations concerning matters of the deposit in writing, specifically in a lease or deed. If you don't have this, the landlord can place it in his/her personal account and spend it however he/she sees fit.

You already know that the rules governing how rent deposits need to be dealt with, it's time to know what items need to be governed in the lease/rent deposit deed. Here are four things to keep in mind.

Who Gets and Holds The Deposit Money

It's probably best that the landlord doesn't hold onto the deposit you give him/her. In fact, it's best if there is a separate account operated by a third party who has no dealings in the matter and ensures that the money is kept where it belongs. A landlord who does not do this and uses the money to his/her content, it would be difficult to recover the deposit should he/she file for bankruptcy.

However, it can be tough to get a landlord to consent to this type of arrangement. The landlord, should agree, not to place said funds in the regular checking/savings account and create an account specified for this purpose.

Who Gets The Interest?

When a landlord places the money in an account that draws interest, it is always the tenant's money. This interest money shouldn't just sit idle in the account but rather paid to the tenant annually.

When Can a Landlord Withdraw The Money?

Are there certain circumstances that allow a landlord to withdraw the cash? Actually, yes but this should be in detailed writing. Solicitors working for the landlord should document the needs in writing.

For instance, if a tenant should fall behind on rent payment or is in complete breach of contract, the landlord can use the money to recoup losses he/she is incurring. This is compensation for the landlord that general law tends to not allow. The money can also be used to pay interest on any unpaid rent should this be written into the lease.

However, a landlord must not use the money to cover a service charge, as there could be a disagreement over the amount of it.

When To Give The Tenant's Deposit Back?

When does the tenant receive the deposit back? Rent deposits are an assurance for the landlord that you will pay your rent. If, after some time, the tenant has shown demonstrable proof of paying rent on top (say for three years), then he/she should be entitled to the money back.

Also should the lease be expired and all things are as they should be in the rental unit, the landlord will need to return the deposit to the tenant and not reduce the amount for general upkeep of the rental unit.

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