Deposits 101: A Guide for Tenants
One of the most contentious moments during a lease period is when the lease is terminated, and discussions around the return of the deposit begin. Paul Stevens, CEO of Just Property, offers insight into how the process is regulated and what tenants and landlords can do to avoid disappointment, stress, and anger.
Section 5 of the Rental Housing Act governs how deposits and interest earned are handled. The Act states that the landlord may require a tenant, before moving into the dwelling, to pay a deposit which may not exceed an amount specified in the agreement or otherwise agreed to between the parties. In practice, deposits often equal one month’s rent, but the specific amount can vary and must be agreed upon by both parties.
The deposit serves as financial protection for landlords, covering damages, unpaid rent, or other costs arising during the tenancy and stipulated in the lease agreement. For tenants, the deposit also serves as a motivator to maintain the property in good condition and fulfill their lease obligations. This dual purpose underpins the importance of transparency and clear communication between tenants and landlords.
The landlord or their managing property practitioner must hold the deposit in an interest-bearing account. Best practice is to hold the deposit in a dedicated trust account, independent of the business or landlord’s operating account. Importantly, the interest rate must not be less than what a savings account with a financial institution would earn. If the landlord is a registered estate agent, the deposit must be handled in accordance with the Property Practitioners Act.
Tenants are entitled to request a receipt for their deposit payment, which should clearly outline the amount paid, the date, and the purpose of the payment. It is essential for tenants to keep this receipt as proof of payment throughout the tenancy.
What Can the Deposit Be Used For?
The landlord is entitled to apply the deposit to specific costs. These include:
● Reasonable repair costs for property damage caused by the tenant.
● Carpet cleaning and other cleaning services needed to restore the property to its original condition.
● Replacement of lost keys or other security items.
● Outstanding arrear rental or utilities owed by the tenant.
● Municipal charges, such as water and electricity.
● Advertising costs incurred for early termination of the lease.
● Commission owed to the property practitioner in the event of early termination.
● Reasonable early cancellation penalties, as specified in the lease agreement.
It is important to note that landlords are not permitted to use the deposit for general maintenance or routine upkeep of the property. The deposit is strictly reserved for covering tenant-caused damage or outstanding obligations, and can only be used once the lease agreement comes to an end, either by lapse of time or cancellation.
Inspection Timing and Best Practices
The Rental Housing Act requires both the tenant and landlord (or property practitioner) to attend an incoming and outgoing inspection. This joint inspection ensures that any damages are properly documented and distinguishes between pre-existing issues and tenant-caused damage.
For the outgoing inspection, it is recommended that it takes place as close to the lease’s expiration as possible and when the property is empty. An empty property allows for a thorough inspection, making it easier to identify potential defects. Tenants should ensure they participate in this process to avoid disputes later.
To further protect themselves, tenants should thoroughly document the condition of the property during inspections. Taking date-stamped photographs or videos is a valuable step, as is keeping a record of these documents. Ensuring that any concerns are included in the landlord or agent’s inspection report can prevent disagreements over the return of the deposit.
Proof of Interest and Expenses
Tenants are entitled to request written proof of the interest accrued on their deposit at any point during the lease. Landlords must provide this information, typically in the form of a letter from the financial institution where the deposit is held.
Similarly, tenants may also request receipts or documentation for any expenses deducted from the deposit. If no costs were incurred, the landlord must refund the deposit in full, along with the accrued interest, within seven days of the lease’s expiration date.
Rental Deposit Return Timelines
The timeline for deposit refunds depends on the condition of the property and the tenant’s involvement in the inspection process:
● If there are no damages or outstanding amounts, the deposit (plus interest) must be refunded within 7 days of the lease expiration.
● If there are damages to repair or outstanding amounts, the deposit must be refunded within 14 days after the restoration of the property.
● If the tenant fails to attend the outgoing inspection, the landlord must inspect the property within 7 days of lease expiration and refund the deposit within 21 days, regardless of repairs.
Legal Reference to Disputes
If any dispute arises regarding the deposit, tenants can escalate the matter to the Rental Housing Tribunal. Landlords are required to keep paid invoices as proof of repair costs, and tenants have the right to inspect these receipts upon request. This transparency is essential for resolving disagreements and ensuring fairness.
Protect Yourself
To safeguard their deposit, tenants should take several proactive measures throughout the tenancy, advises Stevens. “Carefully read and fully understand the lease agreement before signing it, ensuring you understand all terms related to the deposit and other responsibilities. Do not miss either the incoming or outgoing inspections, and document the condition of the property with date-stamped photographs or videos. Ensure that pre-existing issues are included in the landlord or agent’s inspection report to prevent disagreements at the end of your lease.”
When preparing to vacate the premises, tenants should keep receipts for any professional cleaning or maintenance services as proof of their efforts to return the property to the condition it was when they occupied it.
“The most important thing to note is that open communication with the landlord or their managing agent is essential,” Stevens concludes. “Address any concerns or issues promptly and transparently.” It’s also a good idea to keep a record of all correspondence, including emails, letters and text messages, in case of a dispute down the line. “These steps will help tenants ensure a smooth and fair process when it is time to reclaim their deposit.”