NRLA deposit protection provider, mydeposits, has recently shared three guides with us covering property inventories, the importance of photographic evidence and most recently one on the subject of fair wear and tear. These guides have been created to inform landlords how they can best protect their interests in their rental property in a fair and transparent way.

But what happens if, at the end of the tenancy, a landlord feels that deducting a portion of the deposit is necessary? This guide will explain why negotiating with the tenant is almost always the best way forward, how best to do it and, if this doesn’t achieve the desired result how a landlord can prepare for a dispute.

This guide will cover:

• Reducing the need for negotiations
• Negotiation: What it is and why do it?
• How to approach negotiations and avoid a dispute
• Using evidence to support your claim and what is needed

Reducing the need for negotiations

A dispute over costs, even if straightforward, will take time, effort and possibly money, all of which are better spent on other things. Even if you don’t end up in dispute, simply needing to negotiate with the tenant can be stressful and time-consuming, especially if you’re someone that likes things simple and prefers to avoid any potential conflict.

Communication and clarity are critical

Maintaining good relations with your tenant from the start and giving them practical advice on how to look after the property can only be beneficial. Let them know what you expect of them during their tenancy and how best to contact you and report any issues at the time they notice them. Conducting mid-term inspections (i.e. every three or six months) can help you spot any issues, as and when they arise. This will allow you to carry out any repairs promptly or give appropriate advice on problems such as condensation, without waiting until the end of the tenancy when problems may have got worse and the need for negotiating may arise.

Negotiation: What is it and why do it?

Negotiation is a method people use to settle differences. It is a process for reaching a compromise or agreement with the aim of avoiding argument and dispute. In any disagreement, individuals understandably aim to achieve the best possible outcome based on their perspective.

If, for any reason, your tenant breaches the tenancy agreement and you need to propose any deductions to remedy any resulting issues, your tenant may feel that the amount is unfair or unwarranted. By law, the deposit belongs to the tenant unless you can prove your claim to the deposit money and show a loss. If you are unable to reach an agreement, your tenant may be able to raise a formal dispute.

We would always encourage landlords, agents and their tenants to build and maintain a good relationship from the outset of a tenancy. Experience shows that where there is a good relationship, with effective channels of communication, issues are dealt with much more easily at all stages of the tenancy, conflict is reduced and negotiation stands every chance of success.

The key timeframes for dispute resolution are set by the legislation, which means there will be some delay in returning the deposit while the adjudicator reviews the case. Therefore, it is always beneficial for both parties if they can resolve their differences before the need to escalate to adjudication or court.

How to approach negotiations and avoid a dispute

Negotiation is a fundamental part of everyday life, especially in business. As a landlord you’re most likely used to negotiating on a regular basis, but it doesn’t hurt to remind yourself of a few basic rules to help you achieve a successful outcome. 

Prepare

‘Fail to prepare and prepare to fail. Before any negotiation, decide whether you’re willing to compromise and, if you are, know what terms or outcome you are prepared to settle for. Always be prepared to listen to your tenant’s point of view, however, if negotiation is unsuccessful, be clear in your own mind how you want to proceed.

Start the process early

You should aim to begin your negotiations at the earliest opportunity after your tenant has disagreed with the amount you wish to deduct, to reduce the likelihood of needing a formal dispute resolution service.

Arrange a meeting

The best way to negotiate is face-to-face. The tone or intended meaning of the written word can often be misinterpreted. It’s also far easier for people to frustrate the process by causing delays when using emails and letters, so a face-to-face meeting can be beneficial for both parties. Surroundings make a difference. It’s helpful to find a neutral and relatively quiet location where you can both explain your case and work out an agreement.

Aim for a ‘win-win’ outcome

Good negotiation achieves a deal that both parties are content with – a win-win, not simply a win at all costs approach. Approach the negotiation as a mutual attempt to solve a problem and explain to your tenant that this is your aim. Negotiate fairly and with respect and you are more likely to get what you want and avoid a dispute.

State your position

Explain your position from the outset and what you think is reasonable in the circumstances.  Be courteous, but not weak. If you have robust evidence to use, share it with your tenant, so everyone is aware of what is there to avoid the prospect of needing a formal dispute resolution. Make it clear that you would prefer to negotiate a mutual agreement but, if necessary, you have quality evidence to resolve the issue.

Establish the tenant’s claim

The tenant’s position should be asked for as soon as possible; allow them to explain why they feel that the costs you have proposed are unfair, or not justified. State that you understand and respect the tenant’s key points, even if you strongly disagree with their position. Once their position has been established, clearly explain the costs and why you are proposing they are necessary.

Listen carefully

The key to successful negotiation is understanding the other party’s concerns, motivation and point of view. You can only do this by truly listening and drawing out information from what they tell you, so don’t interrupt even if some points are untrue or some opinions are inflammatory. How can you listen properly if you’re busy thinking of your response? They may have a valid point to make. Don’t assume in advance what their response will be otherwise you may unintentionally create a more negative response than you might otherwise have received.

Be flexible

During the negotiation the tenant may make points that you were unaware of or hadn’t previously been raised which might affect your position and your stance. If this is the case then prepare to be flexible and if necessary re-assess your claim. In this scenario, be willing to suggest you have time to go away and consider what has been said. It is wise to avoid making snap decisions.

Stay calm

During negotiations you should never react impulsively or emotionally. This is a golden rule of all negotiations as emotion can quickly spiral out of control, so avoid it at all costs. Avoid personal attacks even if they have been made against you; it will only raise the level of hostility and make settlement more difficult. Keeping calm and measured may diffuse any emotion, on either side, and will show the tenant you are a reasonable person.

Document your negotiations

You should always make sure that every part of the process is clearly documented and shared with your tenant. This may be used as evidence to support your claim if negotiations break down and you end up in a formal dispute.

If you’re successful in reaching an understanding with your tenant, promptly write it down and share it. Sometimes both parties will sign the agreement but often it is documented in email communications. As long as these include all the detail, explaining the position, your discussions, details of the negotiation and the agreed settlement, the time and that the tenant has responded to it, this is sufficient and can support any on-going dispute

Using evidence to support your case

Always remember that any deposit remains the tenant’s money, and at the end of the tenancy the default position is for the tenant to receive it back in full. To be successful in a formal dispute you must send robust evidence to back up your claim. It’s highly possible that using this evidence as part of any discussion with the tenant could be a persuasive enough reason to avoid going through the formal process at all.

Where you have been unable to negotiate a settlement when the tenancy ends you will need to provide relevant evidence to support your claim. The following document checklist details the key evidence you’ll need and the best order to provide it in, whether you are using it for your own negotiation or sending it for independent review.

Highlight relevant clauses in the tenancy agreement, photographs, invoices, receipts and anything else you can to show your tenants to show how you have reached your proposed amount. Remember, fair wear and tear must be included in your calculations and it’s worth remembering that you are entitled to compensation but not betterment*. Standard costs are potentially unfair so be prepared to make concessions if the circumstances dictate. For more information on ‘fair wear and tear’ see our website.

*As a landlord you are not legally entitled to have old items replaced with new ones at the tenant’s expense which would then leave you better off than you would have been had the damage not happened.

Top tip: Adjudicators can only consider cases based on the evidence provided – cases can be lost simply based on the quality or lack of evidence and the way it is presented.

The first three documents listed below are the most crucial to help establish any damage or deterioration in the property that has happened during the tenancy.

The 3 critical documents

1. Tenancy agreement

The legal contract between the landlord and tenant, the tenancy agreement is very useful for negotiating. It should be fair, clear, concise and well worded. It sets out exactly what the tenant’s responsibilities are and what the landlord is responsible for – such as fair wear and tear.

 2. Inventory report

Inventories are there to protect all parties and their value should not be underestimated. They are crucial when looking to negotiate a cost or providing evidence for a dispute. The inventory should be a complete record of the property’s fixtures, fittings and décor, with both their condition and standard of cleanliness, before a tenant moves in. It should also be dated and best practice is for both the tenant and the landlord or agent to sign it, however as long is it is clear that the tenant received the report, this will be good evidence.

The inventory should include good quality photos (which are sometimes date-stamped however where they are embedded in the report, the date of the report will be sufficient) with supporting written detail. Video inventories must be clear and digitally dated, with the relevant time or section highlighted for the adjudicator’s benefit.

3. Check out report

Using the check in report/inventory as the starting point, the check out report should be a quality comparative record of the condition of the fixtures, fittings and décor and standard of cleanliness in the property after a tenant has moved out. Landlords must make allowances for fair wear and tear, and tenants should also check, and be aware of, their responsibilities listed in their tenancy agreement when discussing any deterioration to the property.

Additional useful supporting documents

The following documents can help to fill in the gaps between the check in report/inventory and check-out reports and are valuable in helping to build an all-round picture of what has happened and assess the extent of any landlord and tenant responsibility.

4. Relevant communication

Most commonly, emails and letters between the landlord/agent and tenant which might include any tenant reported issues, negotiation attempts or agreements etc.

 5. Mid-term property visit reports

When done properly, these can offer valuable information on how the property was being maintained and if there are any issues which needed dealing with at the time or have been left until the tenancy ended. For example where a tenant should have reported something, or a landlord was responsible for carrying out necessary repairs and how long it took to put right will help build a picture for discussion.

6. Invoices, receipts, estimates and contractor reports

Evidence relating to costs will only be considered when the evidence clearly shows that the tenant is responsible for causing the deterioration to the property. This evidence must be clear, sufficiently detailed to show the work carried out, and dated to show if it was before, during or after the tenancy. For estimates, the same level of detail is required, even if the work has yet to be done.

7. Bills

If bills such as water, utilities, council tax and broadband have remained in the landlord’s name, all claims should be supported by the calculation for the relevant tenancy dates and the service providers’ statements to the landlord or agent.

8. Rent account statements

Accurate records of rent payments should be kept, with any outstanding amounts clearly noted. There should be a robust rent arrears procedure in place, including written reminders sent to the tenant for non-payment.

We have created downloadable evidence checklists, highlighting what’s most important, for either negotiation or a more formal dispute here.

In summary

A strong relationship, with clear lines of communication between landlords/agents and their tenants is often key to avoiding a dispute at the end of the tenancy. By giving your tenants good advice, managing the relationship and everyone’s expectations throughout, the likelihood of a formal dispute is reduced.

But in the event that it has not been possible to negotiate and reach a settlement, making sure you have legally compliant, fair and transparent documented evidence, as outlined in this guide, will be vital to supporting your claim.

Should things escalate to that stage, mydeposits operates a tried and tested dispute resolution process.

NRLA members get a 30% discount on the deposit protection fee when they protect a deposit with the mydeposits insurance-based scheme in England and Wales.

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