How much should you charge for a tenancy deposit?

How much should you charge for a tenancy deposit?

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When initiating a new lease, it is common practice for landlords to obtain a security deposit upfront from new tenants.

According to legislation introduced in 2007, landlords in England and Wales have to protect this tenancy deposit when it is taken for a short-hold tenancy. This deposit acts as a safeguard against damage or theft, and is a great way to encourage tenants to treat the property with respect so as to receive the full deposit back at the end of the lease.

Here, we take a look at what landlords should look to charge, and how they should go about protecting this deposit once collected.

 

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What should you charge for a tenancy deposit?

 

There is no set rate for obtaining a deposit, but most landlords will collect the equivalent of one month’s rent from tenants.

For example, if rent is £550 pcm, the tenancy deposit would be the same. While this is generally considered to be the minimum payment taken, there’s no maximum, and so some landlords may choose to ask for six weeks or even more upfront. According to a study carried out by Money.co.uk (2016), the average landlord will charge four weeks’ rent for a security deposit, or roughly one month’s rent. The research for the study was undertaken by the Centre for Economics and Business Research (Cebr), who calculated this average to be around £800, a figure that is expected to rise to £1,111 by 2026. In the capital, this figure rises to a projected £2,753.

Once the deposit has been collected, landlords are not able to hold onto this money themselves – it has to be placed into one of three accredited tenant deposit schemes (TDP).

 

What is a tenancy deposit protection scheme?

 

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There are three government backed deposit schemes – Deposit Protection Service, MyDeposits, and the Tenancy Deposit Scheme.

By law, any money collected as a tenancy deposit must be paid into one of these. Provided the tenant pays all rent and bills as required, meets the terms of the tenancy agreement and does not damage the property beyond reasonable wear and tear, the full deposit will be released at the end of the lease and returned to the tenant. Should any damage occur or repairs be needed, the money to pay for this will be subtracted from the deposit, and any remaining funds then returned to the tenant.

It’s important to note that there is a difference between a tenancy deposit and a holding deposit – the latter is paid to a landlord to in effect “hold” the property and take it off the market whilst a tenant signs the lease agreement. Once it is signed however, this holding deposit must then become a tenancy deposit, which should be deposited into a TDP.

 

In conclusion

 

Having deposit protection in place is not only mandatory by law, but it provides landlords with peace of mind and tenants with an incentive to treat the property well. This can greatly reduce the likelihood of deductions or disputes arising, and if the property is kept in good condition, this can mean less work is required between tenancies, something that can reduce void periods as well.

 

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