Can I deduct unpaid rent from my tenant's deposits?

When a tenancy is coming to an end, it is not uncommon for tenants to ask their landlord to use their deposit to cover their last month’s rent.

However, The Tenancy Deposit Scheme recommends that landlords should take a cautious
approach before granting this request. If landlords use the deposit to cover the final month's rent, it may lead to insufficient funds to cover any damage or dilapidation costs that may arise once the tenancy ends, leaving the landlord out of pocket and with no deposit to claim from.

In this blog, the Tenancy Deposit Scheme explores whether letting agents or landlords can deduct unpaid rent from their tenant's deposits.

• Should letting agents stop retaining deposits and skip their last month's rent?
• What to do if a letting agent's tenant has disappeared without paying rent?
• What is a free dispute resolution service?

Should letting agents stop retaining deposits and skip their last month's rent?

Your tenant's deposit is taken under the terms of the tenancy agreement for any loss the landlord may suffer during the tenancy.

If a tenancy deposit is equal to one month’s rent it may seem sensible to keep one to forego the other – but this can leave the landlord high and dry for a potential deposit claim.

Let’s consider the following scenario: Imagine that the monthly rent for a property is £750, and the deposit required is also £750. The landlord agrees to let the tenants skip the last month's rent, provided that they can keep the deposit instead.

However, after the tenants move out, the landlord inspects the property and finds that there is a lot of cleaning, damage, and redecoration needed. The cost of all the work amounts to £600. Unfortunately, since the landlord has already accepted the deposit in place of rent, they’re unable to use it to recover the costs for the work required. 

If the landlord and tenants cannot agree regarding further payment for the necessary changes, the landlord may need to take legal action. However, this can be expensive and difficult to prove in court.

It is always advisable for landlords to seek independent legal guidance before pursuing legal action. Service, which is offered for free from TDS, would not be able to consider the case as the tenancy deposit has already been used in full.

Download our checklists for tenancy agreements and deposit protection for landlords

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The Tenancy Deposit Scheme has produced a template for proposed deductions from the tenancy deposit to help letting agents and landlords set out clearly to their tenants the details of any proposed deductions they want to take from the deposit. You can download it here.

What to do if a letting agent's tenant has disappeared without paying rent?

Sometimes letting agents and landlords cannot control whether a tenant can't pay their rent. There are certain circumstances where a tenant faces unfortunate circumstances and asks to break their contract early. However, what should letting agents do when their contract is broken and they haven't paid their last month's rent?

Once the tenancy has lawfully ended and the tenants have left, landlords can complete a check-out report and then decide if there are any other costs due for the tenancy.

If there is no damage, missing items or cleaning to be done, then you should be able to cover the rent arrears with the tenant’s deposit - subject to the tenancy agreement’s deposit use clause.

You would not need to use a dispute resolution service in this case. However, you should ensure that your tenancy agreement clearly states that you can use the deposit for this purpose.

Find out when letting agents should retain or return holding deposits

TDS TIP

You can read about what a deposit use clause is, and why you need one, here. The TDS also have a guide with deposit use clause examples that you can download here.

What is a free dispute resolution service?

It is essential to keep in mind that the free dispute resolution service offered by TDS may not be able to help landlords in situations where the deposit has been utilised to pay for the last month's rent.

TDS can only handle disputes where the deposit can be deducted, not when the deposit has been employed to cover the final month's rent.

Therefore, landlords should carefully consider the request to use the deposit to cover rent and weigh up the potential risks and benefits.

In most cases, it may be more prudent to request the tenant to pay the final month's rent separately and allow the full deposit to remain intact until the end of the tenancy. This can help to ensure that the landlord is protected in case of any damage or dilapidation costs that may arise after the tenancy ends.

This article was originally published at tenancydepositscheme.com. TDS integrates with Goodlord, giving customers the chance to save up to 10 minutes per tenancy. Learn more about the integration.

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