Understanding the Rental Deposit Process

A rent deposit, in its simplest form, is a sum of money, which is handed over by a tenant to a landlord at the point at which the lease is first negotiated. Any rent deposits, which are collected for a residential premises are protected by strict regulations that require that the landlord enter into a Tenancy Deposit Scheme, which specifies that if the landlord fails to comply with the regulations, the tenant is entitled to sue for compensation in an amount equal to up to three times the amount of the rent deposit. Commercial premises on the other hand, are not endowed with the same privileges.

Many landlords often attempt to use rent deposits for a wide range of purposes. If you have ever wondered about what happens to your rent deposit, then you should definitely take the time to investigate what the landlord is allowed to do with it once you have handed it over to him. You should also find out what ensures the landlord's rights and obligations in respect to your tenant deposit. If you have nothing in writing about what the landlord can or cannot do with your rent deposit, he can put it straight into the bank and spend it.

Who is responsible for holding the rent deposit? In a perfect world, the landlord would not be permitted to hold the rent deposit. It would be held by account operated by the landlord's solicitor in an effort to make sure that the funds were not misappropriated. In the current mode of operation, there is very little protection for the tenant, because if your landlord were to file for Bankruptcy, it would be useless for you to try and sue for your rental deposit, because he would be protected from all legal proceedings through the Bankruptcy Court. If the landlord is permitted to hold the deposit, at the very least it should be paid into a separate account.

Should the landlord or the tenant be entitled to the interest on the rental deposit? The tenant should have the rights to all monies earned as interest from the rental deposit, because the money in all actuality belongs to the tenant. It is advised that the lease or rent specify that the landlord put the money into an account that pays interest. The resulting interest should afterwards be put into an interest bearing account that will at the very least pay the tenant any earned interest once every twelve months. The interest should not just be allowed to sit in the deposit account.

In the event that the landlord should need to draw money from the account, it should be spelled out in very clear terms what the required steps should be to accomplish this goal. In most cases the document should allow the landlord access to the money whenever the tenant breaches the lease. This would ensure that the landlord was able to recover any losses, which had been incurred by the landlord, such as indemnities. What this allows the landlord to do is actually have a right to any compensation and costs that the general law might not otherwise allow, and is inherently fair to both parties involved.

The main principle behind the rent deposit is that the landlord is allowed to ask for a deposit in situations where the prospective tenant cannot demonstrate an ability to pay the rent. The tenant should be entitled to the return of his/her rent deposit whenever a point is reached in the term where they are able to demonstrate their financial strength.