Resolving tenancy deposit disputes

A streamlined process has led to a sharp rise in the number of tenancy deposit disputes being resolved before adjudication

Author: Steve Harriot

18 October 2019

Early intervention in deposit-related disputes between landlords and tenants across the UK has resulted in many more being resolved by agreement, without the need for adjudication.

By law, each government-backed tenancy deposit protection scheme must offer free alternative dispute resolution (ADR) services for tenants, landlords and agents who disagree over the way that deposits should be distributed at the end of a tenancy. The Tenancy Deposit Scheme (TDS) offers this service to its landlord and letting agent members and tenant customers, resolving disputes in a range of ways from adjudication to advice and education on avoiding conflict in the first place. Dispute resolution can involve many approaches and does not automatically involve formal adjudication.

As a not-for-profit company, TDS, and its related organisations TDS Northern Ireland and SafeDeposits Scotland, have been promoting mediation and early intervention in disputes over the past year to help parties resolve their differences earlier. In England and Wales, the specific number of tenancy deposit disputes being resolved before adjudication increased by 31 per cent in the past 12 months compared to the previous year. In Scotland, the increase was 18 per cent, and in Northern Ireland 56 per cent.

Fewer than one per cent of the deposits protected by TDS in England and Wales ends in a dispute – 17,628 cases between April 2018 and March 2019. Of these cases, however, more than one-fifth – 23 per cent – were resolved at pre-adjudication stage.

These statistics highlight TDS's commitment to making the process of deposit protection, including stressful and costly disputes, streamlined and fairer for everyone in the private rented sector. Letting agents, landlords and tenants are all short on time and want a fair outcome. Early intervention or ADR are designed to help achieve that.

In the TDS insurance-backed tenancy deposit protection scheme in England and Wales, tenants can initiate a dispute if they disagree with the deductions their landlord requests on the deposit; agents and landlords can raise disputes if tenants disagree with their proposed deductions. Both parties are then invited to submit evidence to TDS for review.

"By law, each government-backed tenancy deposit protection scheme must offer free ADR for parties who disagree over the way deposits should be distributed at the end of a tenancy"

The ADR team has introduced an early resolution step that helps both parties reach a settlement without the need for formal adjudication. SafeDeposits Scotland carries out the same process and has met with similar success.

In TDS's custodial schemes in England and Wales and Northern Ireland, an online self-resolution process is triggered after the parties have disagreed about the repayment of the deposit. The system helps the parties to reach their own settlement through a process of proposals and counter-proposals.

TDS engages with property professionals to help demystify the adjudication and dispute resolution processes and runs regular TDS Academy training for them nationwide. The half-day foundation course focuses on best practice for tenancy deposits, including complying with the legislation, and top tips for tenancy agreements, check-in and check-out reports. The adjudication workshop focuses on TDS ADR, including how to claim deposit deductions and advice for negotiating with tenants, as well as examining the key issues that an adjudicator looks for in a dispute.

Case study: clarity on cleaning

Cleaning is one of the most common reasons for a tenancy deposit dispute. In one case, the letting agent sought £300 for a full clean of the property to return it to the condition it was in at the beginning of the tenancy. The agent provided the check-in inventory, in which the property was described as having been cleaned to a professional standard. Tenant annotations dealt with the condition of items rather than cleaning issues.

Although the check-out report did identify that a good portion of the property fell below a standard that could fairly be described as professionally cleaned, it did state that certain rooms had been returned to that standard. The tenant disputed the agent's claim and provided photographic evidence, but this only contested minor points. The dispute led to a communication breakdown between both parties.

TDS engaged with both agent and tenant early to resolve the dispute. After significant communication, both parties settled on a split of the funds, with £200 going to the agent and £100 to the tenant. They avoided a full-length adjudication process, which was a sensible outcome given there were issues with what both parties would have put forward had the case progressed to evidence-gathering

In this sort of situation, lack of constructive dialogue and decent evidence from the parties can exacerbate the original disagreement. When it comes to cleaning, clarity in inventory reports and tenancy agreements is vital. Agents and landlords should outline exactly what they expect, and tenants should keep a paper trail of discussions and conclusions.

Constructive dialogue

Resolving disputes over a deposit is obviously beneficial for both landlord and tenant, which is why TDS encourages dialogue between them. Supporting a negotiation defuses situations and enables quick and fair settlement. All protagonists benefit from keeping control of the decision, rather than involving a third party

Related competencies include: Conflict avoidance management and dispute resolution procedures, Landlord and tenant, Relationship management and dispute handling

Varying arrangements around UK

The dispute process varies nationwide and there are also two types of scheme that operate: insurance-backed and custodial. In England and Wales as well as in Northern Ireland both custodial and insurance-backed schemes are allowed whereas in Scotland only custodial schemes are permitted. The differences between the schemes are as follows.

  • Custodial tenancy deposit protection: the landlord pays the deposit to the protection provider which looks after it for the duration of the tenancy until the landlord and tenant confirm how it should be repaid. If neither party can agree on this the provider will hold the deposit until an adjudicator decides what to do through the dispute resolution process or it receives a court order instructing how to make the repayment.
  • Insurance-backed tenancy deposit protection: the landlord holds the deposit and pays a fee to the protection provider to insure it. At the end of the tenancy the landlord and tenant agree how it should be repaid and the landlord pays this amount. If neither party can agree the landlord should submit the disputed amount to the provider which will hold the deposit until an adjudicator decides through the dispute resolution process how to proceed or a court order is given to the provider instructing how the repayment should be made. If the landlord doesnt pay the money to the provider the dispute resolution process can still go ahead.

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