The rental deposit: how much, when it is returned and what can be deducted

A rental deposit is the sum a tenant leaves when the lease is signed, to cover unpaid rent or damage. At the end of the tenancy the landlord returns it, less the deductions the lease allows and the handover report proves. Both the amount and the rules for deducting are settled on the first day, not the last: they go into the lease, and the evidence is gathered while both parties are still walking through the flat together. At move-out the landlord has nothing to rely on but what was recorded on that first day.

The deposit is one of the clauses without which a lease is not finished. The rest are listed in the guide to what a rental agreement must contain.

How much should the rental deposit be?

Set the deposit by what it has to cover: the rent that may go unpaid while a dispute is resolved or the flat stands empty, and the cost of replacing the furnishings most likely to suffer. The amount is agreed between the two parties, so work it out rather than copying it from someone else's listing.

Three things move the sum up or down:

• An unfurnished flat with ordinary appliances. Here the deposit mainly covers the rent. Work out how much rent you would lose between the day the tenant stops paying and the day the flat can be let again.
• Expensive furniture, a new kitchen or appliances that cost more than a month's rent to replace. Add what replacing them costs now, not what you paid for them years ago.
• A long notice period in the lease. The longer it runs, the more rent you stand to lose, and the higher the deposit needs to be.

A high deposit does narrow the field of applicants, though. Every extra month of deposit is money the tenant has to find on top of the first rent and the cost of moving in. A deposit far beyond the loss you could actually suffer turns away good applicants along with risky ones. Nor does a large sum replace the handover report: without one, a higher deposit only means a bigger argument.

What should the lease say about the deposit?

Six things decide whether the clause will do its job: the amount, what the deposit covers, the conditions for returning it, the deadline and the method, how each deduction is proved, and whether the deposit can be set off against the last month's rent.

1. Amount. In euros, in figures and in words.
2. What it covers. Unpaid rent, unpaid electricity, water and heating bills, and damage beyond ordinary wear and tear, measured against the handover report. Anything not listed here becomes a dispute later.
3. Conditions for return. The keys are back and both parties have signed the move-out report.
4. Deadline and method. How many days after move-out the deposit is returned, and to which bank account.
5. Deductions. Every deduction is set out in writing, with a line from the report and a document for the amount.
6. Set-off. State expressly that the tenant owes the last month's rent in full and that the deposit is settled only after the move-out inspection.

The sixth point only shows its worth in the final month. A tenant who is already looking for another flat stops paying and says: "Keep the deposit." The landlord is left without security exactly when the state of the flat is about to be seen. The clause will not stop a tenant from trying, but it lets you answer with a written condition rather than a conversation from a year ago.

If the lease is silent on any of these six points, a dispute is settled by the general rules, which rarely match what either party expected. Ask a lawyer before you leave a point unwritten.

How should you take the deposit so the payment is documented?

Take the deposit by bank transfer, separately from the first month's rent and with a payment reference that names the lease. If you take it in cash, sign a receipt in two copies showing the amount, the date and what it is for.

The common mistake is to let the first rent and the deposit arrive in one transfer. At move-out nothing shows which part was the deposit, and the tenant can claim the sum was different. Two transfers with two references, say "deposit under the lease of 3 March" and "rent for March", close that question before it arises.

Cash is quicker and some tenants prefer it, but a deposit paid in cash is worth no more than the receipt for it. Lose the receipt and the evidence goes with it. So record the amount in the handover report as well, and it sits in two places at once. For a large deposit, check with an accountant whether a sum that size can be paid in cash.

What should you record when you hand over the property?

The handover report holds five things and is signed by both parties: the condition of every room, the furniture inventory, dated photos, the meter readings and the number of keys handed over. Every later deduction has to point to a line in that report.

1. Walk through the flat with the tenant, room by room. Describe the walls, floors, windows, doors and fitted units, and name every defect specifically. "A scratch roughly 10 cm long on the parquet by the balcony door" works as evidence; "the floor is in good condition" does not.
2. Enter every piece of furniture and every appliance in the inventory, with its condition, and for appliances the make and model too.
3. Photograph every room and every defect. The date has to be visible in the file data. Note in the report how many photos you took, so they cannot be swapped later.
4. Read the electricity and water meters, and the gas or heat meter where there is one. Record the readings and the date.
5. Count the keys, access cards and remote controls; their number goes into the report too.
6. Sign every page together with the tenant and exchange copies. Send the tenant the photos the same day by email or message, so both sides hold the same set.

Photos the landlord took alone and sent to nobody carry the least weight. The tenant can always say they are from before the previous tenant moved out, or from after their own move-out. Photos sent on the day of handover and counted in a signed report leave no room for that claim.

A ready template is in the article on the move-in report, and furniture and appliances are easiest to record in a separate furniture inventory. The move-out inspection then follows the same report, line by line.

What can be deducted from the deposit?

The deposit covers unpaid rent, unpaid bills and damage beyond ordinary wear and tear. Every deduction rests on two documents: one shows why it is deducted, the other proves how much. What is deducted, and what proves it, is listed below.

• Unpaid rent. Deductible. Proved by the lease and a bank statement showing the missing payment.
• Unpaid bills for the term of the tenancy. Deductible. Proved by the final bill and the meter readings from the two reports.
• Damage beyond ordinary wear and tear. Deductible. Proved by the line in the handover report, a photo from move-out and an invoice or written quote for the repair.
• Ordinary wear and tear. Not deductible, and there is nothing to prove.
• Cleaning. Deductible only if the lease requires the tenant to return the flat cleaned. Proved by that clause and the move-out photos.
• Lost keys and access cards. The cost of cutting replacements is deductible, and where it is warranted, changing the lock cylinder too. Proved by the counts in the two reports and an invoice.

The line between wear and damage runs along the cause, not the amount. Faded paint, marks from the legs of a sofa and a worn carpet come from the flat being lived in, so they are wear. A burn, a broken door, a stain that will not come out and a hole in the wall come from one specific event, so they are damage. And where the handover report already noted the item as worn or faulty, it is neither.

Price the damage at what restores the item to the condition in the report, not to new. A torn seat on a five-year-old sofa justifies reupholstering or a deduction worth part of its value, but not a new sofa. Deductions worked out at the price of a new item are exactly the ones tenants challenge.

When and how is the deposit returned?

The deposit is returned within the deadline in the lease, once the move-out inspection has been compared with the handover report, the final bills are known and any deductions have been set out in writing. Put in the lease when that deadline starts running: from the day the flat is vacated, not from the day notice was given. Notice periods themselves are covered in the article on ending a rental agreement.

On the day of move-out, walk through the flat with the tenant following the same report, take new photos, read the meters and count the keys. Sign the move-out report together. If you disagree on a line, record the disagreement in the report itself rather than leaving the line unsigned.

The return is most often held up by the final bills. Where they arrive after the deadline for returning the deposit, agree in the lease that you keep the matching part until a set date and return the rest on time. Disputes flare up when the whole deposit is held back over one electricity bill.

The settlement fits on one page: deposit received, each deduction with its line from the report and the invoice behind it, sum returned. Send it together with the transfer to the account named in the lease, and keep a copy with the lease itself.

Smarter Facility is a property management platform for rental properties in Bulgaria. The owner manages the property alone or hands it to a partner agency, and sees rent, agreements, repairs and documents in one place. Online rent payment shows, for each property, which installments are upcoming, due, overdue and paid. A payment made in cash or by bank transfer is recorded separately, so in the final month it is clear at once what is still owed.

What should you do if the tenant challenges a deduction?

Every challenged deduction is answered with the same three things: the line from the handover report, the photos from move-in and move-out, and the invoice. Return the part that is not in dispute straight away, without waiting for the rest to be settled.

If the record for the disputed item is missing or vague, the deduction is weak, and it shows before the dispute goes any further. Then judge whether the item is worth the time and the costs. For small sums a settlement comes out cheaper than anything else. For serious damage, get a written repair quote first and show it to the tenant; the figure in it does more than any explanation.

If no agreement is reached, mediation and the courts are what remain. Discuss with a lawyer what the procedure is and whether it is worth it, before you file anything.

This article is general information, not individual legal advice. For a specific agreement or case, consult a lawyer.