The one aspect of rental property management that causes the most disputes is how tenants’ deposits are dealt with. Specifically, disputes arise around the question of refunds due to tenants at the end of the lease period and on what grounds landlords or managing agents may refuse to refund deposits.
Fortunately, the Rental Housing Act (RHA) clearly specifies how rental deposits must be managed and under what circumstances landlords and managing agents may use deposits to defray expenses.
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Section 5 of the RHA says:
- 5(c) The landlord may require the tenant to pay a deposit before moving into the dwelling.
- 5(d) The deposit contemplated in paragraph (c) must be invested in an interest-bearing account with a financial institution at an interest rate that may not be less than the rate applicable to a savings account with that financial institution, and the landlord must, subject to paragraph (g), pay the tenant interest at the rate applicable to such account which may not be less than the rate applicable to a savings account with a financial institution. Tenants may, during the lease period, request the landlord to provide them with written proof in respect of interest accrued on such deposit, and the landlord must provide such proof on request.
- 5(e) The tenant and the landlord must jointly, before the tenant moves into the dwelling, inspect the dwelling to ascertain the existence or not of any defects or damage therein with a view to determining the landlord’s responsibility for rectifying any defects or damage or with a view to registering such defects or damage.
- 5(f) At the expiration of the lease, the landlord and tenant must arrange a joint inspection of the dwelling at a mutually convenient time to take place within a period of three days prior to such expiration to ascertain if there was any damage caused to the dwelling during the tenants’ occupation.
- 5(g) On the expiration of the lease, the landlord may apply such deposit and interest towards the payments of all amounts for which the tenant is liable under the said lease. The balance of the deposit and interest must be refunded to the tenant by the landlord not later than 14 days after restoration of the dwelling to the landlord.
- 5(h) The relevant receipts, which indicate the costs which the landlord incurred, must be available to the tenant for inspection as proof of such costs incurred by the landlord.
Deposit amounts
The RHA doesn’t specify the amount landlords are permitted to ask for as a deposit, so deposit amounts can vary enormously, depending on the type of property being rented, the monthly rental and the norms pertaining in the market at the time. Generally, though, deposit amounts vary from around one to three months rent, with two months’ rent being the average.
Landlords must always keep in mind that the rental deposit, together with any interest earned on the money, belongs to the tenants. Therefore, they must resist the urge to use that money for any other purpose until the end of the lease period.
After the lease expires, the deposit may only be used to make good any damage caused to the property by the tenants. The RHA specifically rules out the cost of repairing faults resulting from normal wear and tear. For example, landlords may not deduct any amounts for replacing a carpet that has become worn but may deduct the cost of replacing one that cigarette burns have damaged.
Inspections
The best way to protect tenants and landlords is to carry out incoming and outgoing inspections, together or with the rental agent, as specified in the RHA.
With incoming inspections, both parties should document any faults or damages to the property with date-stamped photographs. At the end of the lease period, the photos will provide indisputable proof of the property‘s condition at the start of the lease and can be compared to the state of the property at the end of the lease.
Before signing, tenants and landlords should read through their rental lease agreements carefully. In addition, both parties need to familiarise themselves with the legalities around rental deposits to avoid conflict at the end of the lease period.
Writer: Sarah-Jane Meyer
