Transferring a deposit when a housemate leaves

Why it matters

Incorrectly managing a deposit transfer can lead to significant penalties, including repayment of the deposit and compensation of up to three times its value. It can also create disputes between tenants, complicate future deposit deductions, and undermine the landlord's ability to claim for damages. Strict adherence to deposit protection rules is paramount for financial and legal compliance.

Legal requirements

• All tenancy deposits must be protected in one of the approved government-backed schemes within 30 days of receipt in England and Wales, and within various timescales in Scotland and Northern Ireland.
• Prescribed information about the deposit protection must be issued to all relevant persons, including outgoing and incoming tenants, each time the tenancy or deposit details change.
• Any changes to the named tenants on a joint tenancy agreement constitute a 'new' tenancy for deposit protection purposes, even if the agreement is technically continuing.
• The deposit must remain protected throughout the entire duration of the tenancy, including during any statutory periodic phase.
• Landlords must not accept a new deposit contribution from an incoming tenant without ensuring the entire deposit for the tenancy is correctly registered and protected.
• If the tenancy changes and a new agreement is signed, the deposit should ideally be re-protected as if it were a new deposit, or the scheme notified of the change.
• Landlords must ensure that all parties agree to the terms of any deposit transfer, particularly regarding the outgoing tenant's release from liability.
• Upon a tenant leaving, their portion of the deposit must be returned to them only after agreement from all remaining tenants and resolution of any potential deductions, or be transferred to the incoming tenant.
• In Scotland, a landlord must pay any deposit received to an approved scheme administrator within 30 working days of the beginning of the tenancy.
• In Wales, landlords must protect deposits within 30 days of receiving them and provide prescribed information to the tenant.
• In Northern Ireland, deposits must be protected within 14 days of receipt and prescribed information provided to the tenant within 35 days of receipt.

Common mistakes

• Failing to re-issue prescribed information to all tenants, including the new one, after a housemate change.
• Not notifying the deposit protection scheme of changes to the named tenants on the tenancy agreement.
• Allowing tenants to privately arrange deposit transfers without formal landlord involvement or documentation.
• Returning the outgoing tenant's portion of the deposit without the agreement of all remaining tenants.
• Not conducting a mid-term inspection and schedule of condition when a tenant leaves and another joins.
• Failing to account for potential dilapidations attributable to the outgoing tenant at the point of their departure.
• Accepting a new deposit contribution from an incoming tenant without properly managing the existing protected deposit.
• Assuming that because the tenancy agreement continues, no action is needed regarding the deposit protection.
• Inadvertently creating a new tenancy agreement without understanding the deposit re-protection implications.

Practical guidance

• Review the current tenancy agreement to determine if it is a joint tenancy or individual tenancy agreements.
• Communicate clearly with all tenants, both outgoing and incoming, about the deposit transfer process.
• Conduct a thorough mid-term inspection and create a detailed schedule of condition, noting any damage or changes since the start of the original tenancy.
• Obtain written agreement from all parties, outgoing tenant, incoming tenant, and remaining tenants, on the transfer of deposit liability.
• Facilitate the transfer of the deposit amount between the outgoing and incoming tenants directly, or manage it via the landlord's account if all parties consent.
• Inform the relevant deposit protection scheme about the change of tenants and update the prescribed information.
• Issue updated prescribed information to all existing and new tenants, ensuring they acknowledge receipt.
• Consider drawing up a Deed of Assignment or a new tenancy agreement, depending on the circumstances, clearly outlining the change in tenants.
• Ensure any adjustments for damage or arrears attributable to the outgoing tenant are agreed and documented before they are released from liability.
• Keep meticulous records of all communications, agreements, inspections, and deposit protection certificates related to the transfer.

Understanding Joint Tenancies and Deposit Liability

Most house shares operate under a single joint tenancy agreement, where all tenants are jointly and severally liable for rent and property condition. This means they are all individually and collectively responsible for the entire rent and any damages, not just a specific room or portion. When one tenant leaves, the deposit remains legally tied to the tenancy agreement as a whole, not to individual tenants. If the original tenancy continues with a new person, the deposit still protects the landlord against breaches by any tenant. The deposit protection scheme will register the lead tenant and all other named tenants on the agreement. Changes to these names, even if the address and rent remain the same, must be communicated to the scheme and new prescribed information issued to all parties, including the incoming tenant. This is crucial for avoiding penalties; refer to our article on 'Deposit protection timescales and penalties for landlords' for more detail.

The Process for a Tenant Swap

When one housemate leaves and another joins, the most common approach is for the outgoing tenant to find a replacement. The landlord must approve the new tenant, conducting all necessary checks such as right to rent, affordability, and referencing. Once approved, the outgoing tenant will typically arrange for the incoming tenant to pay them their share of the deposit. This is a private arrangement between tenants, but the landlord must facilitate the legal implications. The landlord should then issue a deed of assignment or vary the original tenancy agreement, formally removing the outgoing tenant and adding the incoming one. This ensures legal continuity and clarifies liabilities. A mid-term inspection at this point is highly recommended to record the property's condition and help attribute any future damage correctly.

Deposit Protection Scheme Notification

Regardless of how the deposit share is handled between tenants, the landlord's obligation to protect the *entire* tenancy deposit remains. When a tenant changes, the landlord must notify the approved deposit protection scheme. Some schemes allow for a simple 'change of tenant' notification, where the lead tenant or other named tenants can be updated. Other schemes may require the deposit to be effectively 're-protected' by issuing new prescribed information. It is essential to check with your specific scheme. Failure to update the scheme and re-issue prescribed information to all tenants, including the new one, means the deposit is no longer legally protected in relation to the new tenancy arrangement, potentially leading to significant fines. This also includes any statutory periodic tenancy that might arise.

Returning the Outgoing Tenant's Share

Legally, a landlord cannot return a portion of a protected joint tenancy deposit to an outgoing tenant without the agreement of *all* remaining tenants. This is because the deposit protects the landlord against the collective liability of the tenancy. If the remaining tenants agree, the landlord can facilitate the return of the outgoing tenant's share, provided there are no deductions to be made. However, it is more common for the incoming tenant to pay the outgoing tenant directly for their share of the deposit. In this scenario, the full deposit remains protected in the scheme, but the beneficial interest in that deposit shifts from the outgoing tenant to the incoming one. Comprehensive documentation of this agreement is vital to prevent future disputes.

Documentation and Agreements

Thorough documentation is critical when a housemate leaves. This should include a written agreement signed by the outgoing tenant, incoming tenant, and all remaining tenants, confirming the deposit transfer arrangements and release of liability. A new tenancy agreement or a Deed of Assignment should be prepared and signed to reflect the change in named tenants. This document must clearly state that the original tenancy continues but with updated tenant names. A comprehensive inventory and schedule of condition from the start of the original tenancy, combined with a mid-term inspection report, will be invaluable if disputes arise later, particularly regarding 'Deposit deductions: what you can and cannot claim'. Ensure all parties receive and retain copies of all updated documents, including the new prescribed information and deposit protection certificate.

Rules in Scotland, Wales, and Northern Ireland

While the principles are similar, there are specific differences in devolved nations. In Scotland, tenancy deposits must be protected within 30 working days of receipt. When a tenant leaves a joint tenancy and another joins, landlords should inform their chosen scheme and ensure new prescribed information is issued to all relevant parties. In Wales, deposits must be protected within 30 days of receipt, and prescribed information given. The Renting Homes (Wales) Act 2016 affects how occupation contracts operate; a 'change of occupier' under a converted occupation contract might require specific notification to the scheme and updated information to contract-holders. In Northern Ireland, deposits must be protected within 14 days of receipt, and prescribed information provided within 35 days. Each jurisdiction requires landlords to inform the deposit scheme of tenant changes and issue new or updated prescribed information to maintain compliance. Always check the specific scheme rules and local regulations.