Collecting a security deposit isn’t something that is required by law, however, it is something that every landlord should collect for their own financial security. A security deposit is what you, the landlord, can fall back on in case you have a tenant who refuses to pay their rent or if a tenant causes serious damage to the property. You may be limited by the jurisdiction you’re in as to the amount you can collect as a deposit but it’s usually no less than one month’s rent. These are the basic things you should know about security deposit as a landlord.
What’s a security deposit?
This is a one-time refundable fee that is paid by the tenant in addition to the first month’s rent.
What’s the ideal amount to ask for?
There are some jurisdictions in which the amount of security deposit you can collect isn’t limited but most landlords will charge between 1 and 3 month’s rent as security deposit. Check with your local council to see if there are any limits with regard to the amount of security deposit. However, the idea isn’t to charge tenants the maximum allowable security deposit. A high security deposit will put off many tenants and thus, the amount you’ll lose by having a vacancy due to a high security deposit may offset any gains. A good tactic is to follow the example of other landlords in the area. If most are asking for one month’s rent as security deposit, you should do the same.
What’s the best time to collect the security deposit?
The ideal time to collect the security deposit is before the tenant has moved into the house. You should only allow a tenant to move into the house when they’ve paid the full security deposit. If they can’t then you should look for another tenant who’s able to pay the full amount. Allowing a tenant to move in before clearing the security deposit is risky because they will likely never pay it or they may never pay it in full. You will be left exposed if that tenant fails to pay rent or causes damage.
How is the security deposit stored?
In the UK, the landlord is required to put the security deposit in a tenancy deposit scheme that is approved by the government if the property is being rented out on an assured shorthold tenancy. The money must be deposited within thirty days of being received.
When is the Security deposit returned?
In the UK, the security deposit has to be returned within ten days of the landlord and tenant agreeing on how much is to be returned. If there is a dispute, the money will be held in the deposit scheme until the dispute is resolved.
What can security deposits be used for?
The best case scenario is never having to use the security deposit. However, if a tenant hasn’t cleared their rent or causes damage to the property, the deposit is sort of like an insurance to cushion the landlord’s costs.