What is the 'deposit use clause' in your tenancy agreements?

26 June 2023

The Tenancy Deposit Scheme shares what you need to know about 'deposit use clauses' - and why they're important for Tenancy Agreements and disputes.

A deposit use clause helps explain how the deposit can be used - so here's an overview of what they are, what they’re used for, and why you need one if you need to claim from the deposit on behalf of your landlords.

What is a deposit use clause?

A deposit use clause is a section of the tenancy agreement that explains how the deposit can be used.

It outlines when a deposit can be kept, such as rent arrears, damages to the property, or other expenses related to the tenant’s breach of the agreement.

The deposit use clause also explains how the deposit will be refunded to the tenant, including any deductions that could be made with mutual agreement, an adjudication, or through a court order.

When drafting a tenancy agreement, it's crucial to include a deposit use clause to make a claim from the deposit and be aware that many online tenancy agreement templates will not include these as standard.

Why do you need a deposit use clause?

Even though most deposit deductions are generally agreed upon without intervention from the TDS dispute resolution team, if there's a dispute, the adjudicator will examine the deposit use clause before making any decisions.

If there is no deposit use clause within the tenancy agreement, it's unlikely that an adjudicator will be able to offer the landlord compensation for any potential breaches by the tenant(s).  

Typically, an adjudicator will need supporting evidence, such as a comprehensive signed inventory, check-in and check-out reports, dated photographic/video evidence, invoices, rent statements. 

They would also need other documented correspondence between the parties that supports the claims being made.

In addition, the deposit use clause provides landlords with a clear framework for handling deposits. By outlining the circumstances under which the deposit can be kept, your landlords can ensure that they're following the law and avoiding any potential legal issues at the end of the tenancy.

Download your free guide to the Renters (Reform) Bill

What should you include in a deposit use clause?

You should consider potential breaches by the tenants and ensure your deposit use clause includes these.

Examples include cleaning, repairs, missing items, gardening, redecoration, rent and utilities that may be in your name.

To ensure that you are able to make deductions from the deposit at the end of tenancy, you'll need to include information in the tenancy agreement about the use of the deposit, and when the deduction will be made.

Although the use of these clauses is discretionary, you may want to add extra clauses, or specifically negotiated clauses tailored to your property’s unique circumstances.

The deposit may be retained by the landlord in the following circumstances:

  • Any damage, or compensation for damage, to the premises its fixtures and fittings or for missing items for which the tenant may be liable, subject to an apportionment or allowance for fair wear and tear, the age and condition of each and any such item at the commencement of the tenancy, insured risks and repairs that are the responsibility of the landlord
  • The reasonable costs incurred in compensating the landlord for, or for rectifying or remedying any major breach by the tenant of the tenant’s obligations under the tenancy agreement, including those relating to the cleaning of the premises, its fixtures and fittings
  • Any unpaid accounts for utilities or water charges or environmental services or other similar services or Council Tax incurred at the property for which the tenant is liable
  • Any rent or other money due or payable by the tenant under the tenancy agreement of which the tenant has been made aware and which remains unpaid after the end of the tenancy

What could be classed as a valid claim?

Legally, the deposit remains the property of the tenant unless the landlord can prove a valid claim to it.  

Therefore, it’s crucial to carefully examine your tenancy agreement to ensure that all possible claims are covered. The landlord or agent has the burden of proof to demonstrate their entitlement to the deposit funds.

The deposit use clause lays the foundation for a claim, but it is imperative landlord’s provide supporting evidence of any potential breaches they would like to make a claim for.

This article was originally published on www.tenancydepositscheme.com

Further reading