The ABC of rental deposits

BE THOROUGH: TENANTS AND OWNERS OFTEN DON’T KNOW

Tenants’ deposits must be invested in an interest-bearing account with a financial institution.

Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home.

Having their deposit withheld, or even having large amounts of it deducted, can lead to a lot of distress for the tenant.

What to do when paying a deposit

Do a pre-occupation inspection. According to the Rental Housing Act, landlords (or the managing agents representing them) are permitted to request a tenant to pay a deposit before taking occupation of a property – although the Act does not provide guidance as to the amount.

It is very important for both landlords and tenants to note that a landlord (or managing agent) who doesn’t conduct a pre-occupation inspection with the new tenant, loses the right to claim against the tenant’s deposit when the tenant moves out.

Check that the deposit invested is

Landlords are required to pay their tenant’s deposits into an interest-bearing account with a financial institution.

Getting a deposit returned

According to the Rental Housing Act, the tenant and landlord have to do a joint inspection of the property before the lease expires.

Should the landlord or managing agent fail to do so, they won’t be able to claim against the tenant’s deposit.

Upon the end of the lease period, the landlord may deduct from the accrued interest and deposit to effect any repairs the tenant may be liable for.

The remainder of the combined sum (accrued interest and deposit) must be refunded to the tenant, no later than 14 days after the tenant had moved out. Tenants are allowed to request that the landlord provide a written receipt of all payments made, including proof of the interest earned on the deposit.

Deductions may not be made for defects that existed before the tenant moved in, or that can be considered as part of “fair wear and tear”.

It’ should be noted that tenants may not be eligible for the accrued interest if they’re renting through an estate agent.

This is because, unless otherwise indicated in the lease agreement, the agent is required to deposit the interest earned in to the Estate Agents Fidelity Fund, as per the Estate Agency Affairs Act of 1976.

Tenants can ask for a contract to indicate the interest be paid to them “subject to any written agreement in this regard between the agent and such party”. Tenants need to be aware that a percentage of the interest may still be used to cover the agent’s administrative expenses.

Bruce Swain is CEO of Leapfrog Property Group