Security deposit: when you can keep it and when it must go back in full
The deposit is often the most contested item in the whole end-of-tenancy settlement. The contract ends, the keys come back, and both sides start counting: one how much is left to return, the other how much they are entitled to keep. Settlements run by tenanto users show one thing clearly: most conflicts do not come from bad faith. They come from the fact that nobody agreed on a common point of reference. Below, step by step: when a deduction can be defended, when the deposit has to come back in full, and which papers decide the outcome of a dispute.
What the deposit is for and what it does not cover
The deposit secures the landlord’s claims under the tenancy agreement. That is all. It is not extra income, it is not an advance on rent, and it is not compensation for the simple fact that the tenancy has ended. It secures two separate things: financial arrears (rent, service charges, utilities settled after meter readings) and the cost of repairing damage to the property.
The most common misunderstanding we see in tenanto settlements looks like this: the tenant treats the deposit as a prepaid last month and simply stops paying. And so the landlord is left with no security at all at exactly the moment the property is handed back. Which is when it is needed most.
Until the owner shows a specific, costed claim, the deposit is the tenant’s money. And the way it is described in the contract later decides whether a deduction can be defended at all.
When a deduction from the deposit is justified
A deduction usually holds up in a few recurring situations:
- Unpaid rent for the last period of the tenancy or arrears that built up earlier.
- Unsettled utilities billed only after the tenant moves out, based on meter readings and supplier invoices.
- Repair of damage that goes beyond normal wear and tear.
- Removal of belongings left in the flat against what was agreed.
- Cleaning, when the property comes back in a state clearly different from the one described in the report.
All these cases share one thing: a documented amount, not an estimate from memory. With a defect there is a second condition - you have to show it arose during the tenancy, so you compare the condition at handover with the condition at return. And one more thing: the owner should give the tenant a written settlement. Transferring the balance without a word of explanation is a straight road to a row.
Normal wear and tear versus damage - the line disputes are fought over
Wear and tear is the landlord’s burden, because it is a built-in risk of renting out property. Damage caused by the tenant is the tenant’s burden. The problem is that the line can be blurred.
Wear and tear usually covers: a worn floor finish along the walking route, paint faded after a few years, worn seals and taps, small scratches on worktops. Damage covers: torn-off hinges, a cracked worktop, holes from wall plugs put in without agreement, veneer ruined by a leak nobody reported.
The length of the tenancy matters too. The longer someone lived there, the larger the share of what you can see is natural rather than the tenant’s fault.
Tip: when deducting for a damaged item, calculate the replacement value reduced by wear to date, not the price of a brand new one. And for contested cases involving large sums, talk to a lawyer before you deduct anything unilaterally.
When the deposit has to come back in full
A full refund is due when there are no arrears, the property matches the description in the return report, and the owner has no documented damage. But it is also due when the landlord subjectively feels the flat is in worse shape than before and cannot back that up with anything. Without a handover report there is practically no way to defend a deduction - you cannot show what the property looked like at the start.
Ending the contract early is not in itself a reason to keep the deposit. Any contractual penalty is a separate matter: separate grounds, separate amount, separate settlement.
On the other hand, a common mistake is returning the whole sum before the final utility bills are settled. It is better to write into the contract that the settlement happens after meter readings and after the supplier invoices arrive.
The documents that decide the outcome of a dispute
A deposit dispute is settled by evidence, not by how strongly each side feels. In practice five things count:
- The handover and return report describing the condition, meter readings and photos, drawn up both at handover and when the keys come back.
- Photos with dates and descriptions, assigned to a specific flat rather than dumped loose into the phone gallery.
- Payment history showing the date each payment landed.
- Correspondence about defects reported during the tenancy.
- Invoices and quotes for repairs carried out after the move-out.
That is how we designed it in tenanto: the deposit is a separate item on the contract, reports with photos stay attached to the flat, and the tenant’s full payment history sits in one place on exactly the day the keys come back. Everything else the system keeps track of for the owner is described in the tenanto feature list.
The refund procedure step by step
- Take the property back and write a return report, comparing it with the handover report.
- Note the meter readings and take photos confirming them.
- Wait for the utilities to be settled by actual consumption.
- List rent arrears and any other unpaid items.
- Cost any repairs on the basis of invoices or quotes, not off the top of your head.
- Give the tenant a written deposit settlement with the amounts itemised.
- Transfer the remaining sum and keep the confirmation.
In the contract, set the refund deadline counted both from the handover of the property and from the utility settlement - otherwise you will end up arguing about the date itself. Tip: send the settlement in writing together with the transfer, even when you are returning the full amount. The cheapest insurance against later complaints, honestly. Refunding in two parts can also make sense: the undisputed amount straight away, the rest once the repair invoice arrives.
The mistakes that cost landlords the most
First: mixing the deposit with private money. After a year or two the owner no longer knows exactly how much they took in and how much they owe back, and in a dispute there is no way to reconstruct it. Second: deducting for defects the tenant reported during the tenancy and the landlord never fixed. That argument is hard to sustain when there is correspondence proving the report was made.
Third, charging the price of a brand new appliance for one that has been in use for several years. Fourth: silence instead of a settlement. That usually ends with a formal payment demand and escalation.
Oh, and one more thing almost nobody remembers: no clause about topping up the deposit when the contract is extended and the rent goes up. Discuss the tax side of the retained portion with your accountant, because it depends on the grounds on which it was kept. We have collected more traps like these in our articles on managing a rental property.
Summary and FAQ
The practical rule is simple: the deposit comes back in full until the landlord shows specific, costed damage or arrears. A settlement dispute is not won by whoever is right, but by whoever has the documents confirming the condition of the property and the payment history. So keep reports, photos and settlements in one system, not in three different places. In tenanto you can do it on the free plan for a single flat, with no time limit.
Can the tenant live out the deposit in the last month of the tenancy?
No, unless the parties agreed otherwise. The deposit secures claims, it does not replace rent, so a tenant deciding unilaterally not to pay the final instalment creates arrears. If both sides want that arrangement, they should agree it in writing - aware that the landlord is then left with no security at the moment the property is handed back. Answers to other common questions about settlements are collected in our FAQ.
