The ABC of Rental Deposits

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 it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.

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 they move out,” says Swain.

Check that the deposit is invested

Swain highlights the fact that 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 will not be able to claim against the tenant’s deposit.

Upon the end of the lease period the landlord may then 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 then be refunded to the tenant, no later than 14 days after the tenant 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’s important to note that tenants may not be eligible for the accrued interest amount of 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,” explains Swain.

Swain points out that tenants can ask for rental contract to indicate that 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 in this case,” says Swain.

It is critical that both landlords and tenants read through their rental contracts carefully before signing and familiarise themselves with the legalities around rental deposits to avoid conflict down the line.

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