Security Deposits – What to learn as a landlord. 

Here is a brief overview about why, as a landlord, you may want to take a deposit from Tenants (and how to correctly and legally do so).   

As a landlord that is looking to rent out a buy-to-let property or HMO property out to tenants, you’ll need some form of a security deposit to cover any unforeseen expenditures (a tenant falling into rent arrears, as a n unfortunate example).  However, many landlords can be confused about how much money to take, what to do with it, and what the rules and regulations are currently around deposit collection.

Firstly, it’s not actually compulsory to take a security deposit from tenants – there is no legal requirement for you to accept money from tenants that move into your property. There is an issue immediately, however, as without a financial input from tenants as they move in you may not be able to pay for the property beyond the usual costs that ensue when a property is lived in. Another problem is that without the idea of a deposit return, certain tenants may be much more comfortable to treat the property with discontent, specifically when you draw close to moving out dates.

When it comes to how much to charge the rules have recently been altered. According to the Tenant Fees Act of 2019, the deposit cap for the value which landlords are permitted to ask for is 5 weeks’ rent for properties with an annual rental cost of £50,000 per annum. Though this is a cap, not a suggestion it does give landlords a suggestion as to what they can charge tenants – e.g.  calculate 5 weeks rent, so for a property of £250 a week the suggested deposit is £1250.

When it comes to how to store your collected deposits, you need to refer to the Tenancy Deposit Scheme (TDP). This scheme stipulates that any property landlord in England and Wales must place the deposit into one of three government-approved schemes, The Tenancy Deposit Scheme, MyDeposits, or The Deposit Protection Service. When the tenant comes to the end of their tenancy, the appropriate deposit scheme will release their money back to them (subject to the tenant meeting the conditions). 

You should protect the deposits you receive within the first 30 days – which not be the date that the tenancy starts. There is also information that must be given to the tenant (The provision of these details to the tenant is mandated by law – so it’s best to get them to sign to say they have received the information). This information is the address of your buy-to-let property, which type of deposit scheme was chosen, the total amount of deposit taken, details of how to contact the deposit scheme in the event of a dispute, details of any 3rd party involved in the taking of deposits (such as a letting agent), and details of how to apply to have the deposit returned. Also, though it’s legal to be paid in installments, it can make it much more complicated to complete the protection of the deposit via the aforementioned deposit schemes. However, this may be a preferred method of the tenant – so it can be completed over an installment scheme. 

Finally, these are the regulations as they currently stand in law, however the law can be changed. Make sure you read up about deposits before you collect them from tenants as they can be costly when you incur the penalties for incorrect collection.  If you want to read more about the law around them then head to the official page of the government’s website here:


Nick Fox started his property investment career 10 years ago and his portfolio has grown to one of the largest in the UK. Nick now mainly focuses on HMOs (houses in multiple occupation) and works to help others achieve property success too. Visit here to find out how he can help you.

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