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Let’s start off with the purpose of the damage deposit . . .
Purpose of the Damage Deposit
The damage deposit is the only the security the landlord holds in terms of the lease. Security to cover any debts owing and/or damages at the end of the lease.
” . . . the landlord may apply such deposit and interest 30 towards the payment of all amounts for which the tenant is liable under the said lease, including the reasonable cost of repairing damage to the dwelling during the lease period and the cost of replacing lost keys . . . “
Clause 5(3)(g) of the Rental Housing Act
Experience shows that the most common debt at the end of a lease is rental arrears. For this reason I’m going to focus on rent arrears in this article.
What can you do when a tenant gets into rent arrears?
Let’s assume the lease is a fixed term lease, which I believe is a safe assumption.
The tenant doesn’t pay the rent in full (or at all) – let’s call this month 1. You take the usual action of calling, emailing, etc but to no avail.
The first formal step – to recover any amounts owed, as well as to cancel the lease agreement – to take is to issue a notice of breach (Letter of Demand (LOD)).
n this article we’re focussing on the process to cancel the lease agreement – not the process of recovery of amounts owed.
The first legal requirement (we’re assuming a fixed term lease here) to legally cancel the lease under the Consumer Protection Act (CPA) is the LOD which puts the tenant on notice that they are in breach of their lease. The LOD needs to give the tenants 20 business days to remedy the breach, i.e. pay the outstanding balance. If they don’t pay in this time frame, you can take the next legal step to end the lease by sending a letter of cancellation or lease..
If the tenants settle the account during this period, the matter is resolved.
The problem only escalates if they don’t settle their debt IN FULL.
The next important date is the 21st business day after you have sent the LOD. If the LOD was send by registered post, then you need to allow 4 business days for delivery. Let’s once again call this a week for simplicity sake.
When can you take the next step, i.e. cancel the lease?
It’s important to put the deadline date for payment of the LOD in context . . .
The rent fell into arrears on 2nd day of month 1 – day 1 being the due date for rent payment.
The LOD wouldn’t have been sent before day 3 or 4 of month 1. This is roughly a week as well.
In summary, the time elapsed will be . . .
- rent follow up – approx 1 week
- LOD delivery by registered post – approx 1 week
- prescribed LOD timeframe for payment – 4 weeks
This adds up to just short of 6 weeks in total before you can take the next legal step, i.e. cancellation of the lease.
It’s important to note that by this time we’re in the next month. It’s safe to assume – and experience bears me out in this – that month 2’s rent also hasn’t been paid. If the tenant wasn’t able to pay month 1’s rent, it’s highly unlikely that they would be able to pay month 2’s rent.
So by the time you reach the deadline of the LOD and can cancel the lease the rent arrears stands at 2 months’ rent owed.
The conclusion?
You need to take at least 2 months rent as a damage deposit to cover your landlord.
I hope and trust you found this information useful. Please feel free to post any questions you have below and please feel free to share this post if you know of anyone else that might also find it useful – or share on Facebook or Twitter by clicking on the share links below.
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What is a reasonable fee if my 1 year lease is canceled by the tenant.
He gave me 2 months notice and after only his 2nd month in the property.
My place stood open for 2 months and I lost that rent due to his premature cancellation.
Am I entitled to withold his deposit as a loss of income and damages repaired on their exit.
Hi Tyrone, firstly I have to say I’m not a lawyer so cannot give you any legal advise – this training is intended for rental agents. Also, not knowing the details of your matter I can only give you a general answer based on my experience, however, on the matter of cancellation fees, to be entitled to charge the tenant a cancellation penalty you need to have taken steps to mitigate your loss – primarily you need to have advertised the property for re-tenanting immediately and you should advertised it on the sames terms and conditions – most importantly you cannot advertise for a higher rental than the cancelling tenant was paying. If you need any further advice in regarding cancellation penalty I suggest you either speak to the Rental Housing Tribunal, or speak to a lawyer. In terms of the tenant’s deposit – the only deductions you can make from the deposit legally is rent arrears (not rent loss) and the cost of repairs for any damages the tenant caused to the property – but bear in mind that you will need to be able to furnish proof of these damages if the matter ends up at the Rental Tribunal.
Hi Shaun, thank you for your most informative posts.
My agents think I am mad wanting to go back to double deposits requirements…I started this trend about 3 years ago and my take was and still is “if you cannot pay the required deposit, then this property is not for you”
However, my girls say that we will not rent the properties out , they will stand empty. They’ve placed good tenants at month and a half and those good tenants would not have been able to pay double…
I am at a loss as to how to address this with them…they are more concerned about placing right now than looking after the landlord in the long run. Even after I am happy to allow a two month instalment plan for the double deposit…I’m left scratching my head…thanks again Loren
Hi Loren, I totally understand your predicament. I’ve also had to train agents in my team to do this and I know it’s an uphill battle. and I agree totally with your take that ‘if they cannot pay the deposit, then the property isn’t for them. Alternatively, they can always borrow the money from the bank. I’m really not convinced that the amount of the deposit loses good tenants – I believe that, in fact, it’s a useful ‘filter’ in the rental process more than a deterrent. The fact of that matter is that the deposit is the ONLY security that the landlord has if anything goes wrong. The best training I have found is real life experiences where a landlord has been left out of pocket because of a bad experience that could have been different if more deposit was held. When you’ve had to deal with a landlord in a horror situation you learn a lot quicker I have found. Sometimes I’ve also found that someone besides you speaking to them could possibly also make a difference – I’ve found that the same message delivered by a different ‘messenger’ often makes a difference. I simply made a 2 month deposit non-negotiable as it was a part of our mandate, so team members could not negotiate on deposits – our agreement with the landlord was to take 2 months deposit and that’s what we did. Once you take the negotiating ability away from the agents they don’t have the dilemma anymore. After all, it’s the landlord’s decision, not the agents,