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Should you take a holiday rental damage deposit from guests?

There is always lots of publicity about holiday rental scams and problems from a holidaymaker’s point of view. But what about the property owner?

One thing is for sure – holiday home owners take a huge risk every time they let their homes to a ‘stranger’. With a constant turnover of holidaymakers staying at holiday homes, owners have a continuous fear that guests will cause damage.

How can owners protect against damage from holidaymakers? Security or damage deposits are one way, however there are often challenges when proving who is responsible and what happens when the damage is extensive?

For complete peace of mind property owners need holiday let home insurance, which includes damage by guests.

Why take a damage deposits?

Although the very nature of holiday letting will result in ‘wear and tear’ and small breakages (which it would be unreasonable to charge guests for), there will be incidents when damage is due to negligence – excessive cleaning required or burn marks on worktops for example.

For these incidents, one way to ensure that as an owner you don’t incur a financial cost is to take a damage deposit from guests. Usually £100 per week or 10% of the rental, which can be deducted from if needed.

Also, there are arguments that if there is a risk that a holidaymaker could loose their damage deposit, this can act as a deterrent and make them think twice.

Proof

However, one of the main issues with deducting from damage deposits is proving who was at fault. Unfortunately, some damage only comes to light when it’s too late to identify which party was responsible. If this is the case then taking a damage deposit is futile.

There is also the issue of renters denying that their group caused the damage or stopping the deposit cheque from clearing.

Although by taking a damage deposit owners can deduct for small incidents of damage, there will be occasions when the damage will cost more than the security deposit taken. Then the owner will have to either absorb the costs as ‘being the nature of the business’ or claim on their insurance.

What if damage exceeds the security deposit amount?

Due to ‘proving who did it’ issues and that damage deposits can deter some guests, there are some owners who don’t take them. Therefore it is essential that both these, and owners who take damage deposits, also have holiday home rental insurance that covers damage by guests. This is to cover major damage, a fire for example, which would cost more than any security deposit taken.

Where the holidaymaker is at fault, use their security deposit to cover the insurance excess.

Tips when taking damage deposit

  • How much deposit should you take? – usually £100 per week or 10% of the holiday rental is acceptable. Payable when the balance is due.
  • Inform guests of your damage deposit policy – your holiday rental agreement terms should outline your security deposit policy. Ensure guests sign your rental agreement before accepting any bookings.
  • Preventing damage disputes – unless your housekeeper can identify the culprit of damage, it will be difficult to prove. Your housekeeper should inspect your holiday home after each guest to identify damage immediately. Create a property inventory checklist for them to use. Also, take plenty of photos of damage and keep receipts as supporting evidence in case of disputes.
  • Confronting guests about damage – accidents happen, and sometimes it’s better to keep the goodwill with your guests, who could return, rather than withholding their security deposit for small incidents. However, if there is a dispute your supporting evidence and signed rental terms should work in your favour.
  • Encourage guests to contact you if anything gets broken or damaged – this will enable you to replace them or suggest that guests replace damaged or broken small items that the next guests will need.

Whether you take a damage deposit or not, its essential that you protect your holiday home with holiday let landlords insurance that covers damage by guests, should damage cost more than the security deposit taken.

Check terms of the insurance so you understand what is, and isn’t covered. Also bear in mind the excess on the policy and whether this will make claiming for small damage worthwhile, combined with loosing a no claims bonus.

There are arguments for and against taking damage deposits – but having insurance is essential.

19 Comments

  • Mrs Arran Middleton |

    I’ve just been speaking to a holiday cottage letting agent who informs me that taking a damage deposit is now illegal unless the agent opens a bank account for each customer who pays a damage deposit, so it doesn’t get spent ! Is this a way of getting out of offering to take damage deposits? Or the truth!?

    • Philip |

      This is new to me, which letting agency was it? Have you spoke to any other agents about this? I will ask around to see what other agencies say.

    • Sue |

      Since 2007 a tenancy deposit scheme was set up to protect tenants from unscrupulous landlords but this was for Assured Shorthold Tenancies, deposits are lodged with an independent body, there are currently 3 approved providers. This does not apply to holiday lets in these instances a small deposit of £100 may be taken to cover minor damage and insurance taken out to deal with larger claims. Check the direct gov website

  • RICK BOND |

    Some of our owners operate using a security deposit. These range from £100 to £600. Proving a claim is always a tricky one. We have a rule with owners that any claim must be reported by the housekeeping team within 24 hours of departure and always before the arrival of the next set of guests – whichever is the sooner. This reduces the ‘it was working when we left it’ response quite considerably.

    We also advise owners to ensure they have contents insurance in which any valuable items are separately listed.

    • Philip |

      Great advice Rick. Damage disputes are the No1 complaint I see from both owners & guests. Owners/agents/housekeepers need a policy like yours to identify the culprit of damage immediately. Unless you are 100% certain who did the damage then don’t deduct from the security deposit. It simply isn’t worth ruining your reputation with bad reviews. Also, have guidelines for when to deduct – simple breakages (crockery) or minimal accidental damage shouldn’t be charged for. Although annoying for owners, it comes with the territory when letting.

      However, if guests have been negligent and caused damage, then owners have every right to deduct from a security deposit or pursue via the courts if necessary.

      Owners should also ensure they have accidental damage insurance when holiday letting should the loss/damage be greater than the damage deposit or if one isn’t taken.

  • Chris C |

    We take a £150 security deposit and clearly state within the rental agreement that if there are any damages these will be deducted from the security deposit. It’s also important to have a clause in your rental agreement to stipulate that any damages above the initial security deposit will be covered by the guest. When a guest puts down a deposit I think there is more awareness to ensure the property is looked after.

    Ensure that all guests sign the rental agreement so if anything does go wrong you have a contract. Insurance is still required regardless.

    • Philip |

      Thanks for your comment Chris.

      Re:

      It’s also important to have a clause in your rental agreement to stipulate that any damages above the initial security deposit will be covered by the guest.

      I wonder if anyone has been in a situation where they have successfully pursued a guest for such damages (through the courts?) if they refuse to pay any amount above the security deposit? Would it be worth the cost and effort involved? Ensuring your insurance covers accidental and malicious damage is an essential safeguard.

  • Ruth |

    I’ve just come back from visiting England, and stayed at an Apartment, in Slough. I paid a 200 pound security deposit, which I’ve done countless times, for other things over the years, and all those times, they always showed up as ‘pending,’ in my bank account, but in this occasion, the amount was actually withdrawn from my account. To say that I am furious about what he did, is an understatement. The owner of the apartment has therefore, used my money as an interest earner for himself, which infuriates me, even more. He never at any stage, said that he was going to actually take the money from my account, because as I’ve said, I’ve ever only had these types of payments show up as pending in my bank account. He had no right doing what he did, and I certainly did not give him permission to help himself to my money.

    I’d really appreciate your opinion on this, because I’m fairly sure that you would agree with me, that he should never have taken the security amount out of my account, but should have held it there as a pending only amount.

    Please respond as soon as you can, as I still have an ongoing issue with this person, as it has been nine days now, and I still have not received my money back, even though it was promised to me within 5-7 days, and he even informed me that it was processed, days ago.

    • Philip |

      Hi, It’s common practice for holiday rental owners to bank the security deposit due to the fact that if the payment hadn’t cleared there wouldn’t be anything to deduct from if a guest caused damage. E.g. The guest could simply cancel the cheque.

  • Valerie Young |

    I let my holiday home for the first time this year. The first guests left the house in a bad state. The carpets needed to be professionally cleaned before the second guests. The second guests, who arrived a few days later, left a review. The review was very good apart from the smell of cigarette smoke in the bedrooms. I have a strictly no smoking policy and was devastated to know that guests smoked and as a consequence undermined the holiday home.

    How can I prevent that happening again? I did not ask for a damage deposit as I thought this would have been prohibitive.

    • Philip |

      Although the majority of guests will respect your home, there will always be a handful of guests who cause extra cleaning. It comes with the territory I’m afraid. What does your guest information and terms and conditions say about smoking? Have a read of our Holiday Home Booking Terms & House Rules Template post where we suggest including this statement “Smoking anywhere on the premises will result in immediate termination of occupancy and forfeiture of all payments. This must be strictly adhered to and any damage or extra cleaning caused smoking will be at the expense of you”. The smell of smoke should have been noticed and dealt with at changeover, so the next guests don’t complain. Here are some tips to get rid of the smell of smoke. I would reply to the review and clarify why the property smelt of smoke. I hope this helps.

  • Sarah |

    I have been asked for a damage deposit of £200 (week’s rental £580) for a holiday rental to be paid 8 weeks before taking the apartment. Clearly this is being used as a cash flow management system as they want the money paid directly into their account. This seems excessive to me – I would not mind paying something when I arrive, to be given back when I leave. Is this reasonable?

    To be honest, if I had read these conditions properly at the time of booking, I would never have made the booking.

    • Philip |

      Hi Sarah, this is standard for those owners/managers who take a security deposit. Regarding your comment “I would not mind paying something when I arrive, to be given back when I leave. Is this reasonable?”, some owners might not be happy with this as damage could be discovered shortly after the guest has left with their returned deposit. It would be difficult for the owner/manager to identify damage with a quick check of the property. It’s usually identified during the changeover cleaning. If you are concerned then check over the property on arrival and report/photograph any existing damage to avoid a dispute after you leave. From experience, owners deducting from security deposits is rare (unless the damage is deliberate and significant). Enjoy your holiday.

  • Thomas Benedict |

    Hi Guys,
    I am considering to rent out my motorhome to someone for 2 weeks. What do you think would be a reasonable deposit to be asked for?
    Thanks for your answer,

    • Philip |

      £100 would be reasonable. What do companies charge e.g. Campanda

  • Sarah |

    Hi, I wonder if you could advise? We recently stayed in a cottage and 3 weeks after our return we received an email to say we had caused some damage and needed to pay just over one hundred pounds. We strongly disputed the damage claims but despite writing with our concerns they are still chasing us. The strange thing is that they took our card details for a damage deposit which they said they would hold for 15 days. They did not take it or contact us about damage charges until 3 days after the 15 days had expired. Can they still make a claim against us even though they lost their chance to take our deposit?

    • Philip |

      What type of damage was it? 3 weeks is a long time to contact you about damage. Ideally it should be reported the same day as check-out or within a week. If you dispute it then the property manager would have to prove you did the damage. If payment is deducted you could dispute it with your card provider.

  • Adam |

    We have just started letting our chalet this summer. Following some advice from some experienced property managers our security bond arrangement seems to be working well. The bond is £150 which guests can either pay via BACS with the cost of the rental or, pay in cash on arrival when they receive the keys to the property. Check out is at 10am on the final day allowing four hours to clean thoroughly and check the inventory before the next guests arrive after 2pm. If all is well, the deposit is transferred back to the clients account on the same day of their departure. We haven’t had any complaints about asking for a bond and as we have spec’d the property fairly highly, it seems fair to ask for the deposit and so far, the guests have been in agreement. It seems obvious that the more your tenants feel looked after and respected, the more respectful they are although I’m sure there will always be an exception. Hopefully we never meet.

    • Philip |

      Hi Adam, looks like your procedure works for you. Hopefully you wont have to use the security bond!

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