Holiday Let Damage Deposit Guide: How To Protect Your Holiday Rental
Why you should take a holiday home security deposit
Every holiday let landlord hopes that their property will be left in the same condition it was in on check-in day. However, while there are effective ways to mitigate damage from occurring in the first place (such as guest screening and noise monitoring devices), guest damage to your holiday let, accidental or otherwise, is inevitable.
Whether someone breaks an appliance, stains a carpet or one of your guests throws a wild party, it’s recommended that hosts take a security deposit (also referred to as a damage deposit), to protect themselves from the financial implications of damage.
This guide will outline some best practice tips for collecting holiday let damage deposits, what to do in the event of damage, and how they can be used to build trust between hosts and guests.
How do holiday let damage deposits work?
A damage deposit is a set amount of money that guests pay to cover any damage to the property and other incurred costs (e.g. additional cleaning) during their stay.
If there is damage then a partial refund or no refund is given, dependent on the extent of the damage. If there isn’t any damage, then the deposit is refunded to the guest.
How much security deposit should you charge?
It’s essential to get the balance right between charging your guests enough to discourage risky behaviour, but not setting it so high that it deters bookings.
There are generally two types of holiday rental damage deposits: fixed-rate and percentage.
Charging a fixed security deposit
This is a fixed amount, typically £100 per week. If you manage a luxury rental or a larger property, then you may want to charge more. If you are unsure about how much to charge, check what similar properties in your area are charging.
Charging a percentage
A percentage-based security deposit is calculated based on the total price of the booking – typically 10%.
Which should you choose? It depends on what works best for you. Fixed-rate security deposits can be easier to manage and automate as the amount rarely changes. They also tend to be higher than charging a percentage when your holiday home takes 2/3-night reservations.
Ways to collect a holiday rental security deposit
Bank transfer – Some guests will want to pay by bank transfer. As your details will already be stored in their account from the deposit/full payment, it will be simple for them to pay the damage deposit by bank transfer.
Via a payment provider – You charge the damage deposit amount to your guest’s card and then refund it once you’ve checked there’s no damage. It’s easy to automate using a payment provider like Stripe or your property management software (PMS) provider. However, there are likely to be processing fees for collecting and refunding the security deposit.
Credit card pre-authorisation – This is where you place a temporary hold on your guest’s card for the security deposit amount.
Via the OTA that you use – Each booking platform (e.g. Airbnb, Vrbo, and Booking.com) has different processes for handling security deposits and some offer a form of host protection. However, these may not cover everything you need them to cover and are not an alternative to insurance. They also only protect you on bookings made via these channels.
Pros of taking a holiday let damage deposit
There are several benefits to taking a damage deposit for your holiday let.
- It’s one way to ensure that as an owner, you aren’t financially responsible for minor damage caused by guests.
- If there is a risk that a guest could lose their deposit, it gives them a greater sense of responsibility and respect for the property, making them think twice about their behaviour.
- Security deposits also tend to deter guests who might have a hidden agenda for renting your property – e.g. to throw a party.
Cons of taking a holiday let damage deposit
There are some disadvantages to taking a damage deposit. Some hosts opt not to ask for one, believing them to be more hassle than it’s worth.
- Having to hand over extra money can create booking friction and deter some guests from booking your property.
- The worry of surprise charges and that they won’t get their deposit back can also deter some guests from booking.
- It’s often your word against the guest’s and this can lead to disputes, bitter guests and negative reviews.
- Guests can always dispute the charge with their credit card company and request a chargeback.
- They create a fair amount of extra administrative work for the host.
- If you rely on a booking platform’s damage scheme, payouts can take weeks, especially if there is a dispute and you are reliant on a third party to decide who pays for the damage.
How to deal with damage to your holiday let
Here are some best practice tips to follow when taking security deposits and dealing with damage.
Inform guests of your house rules
Damage control starts with detailed rules which tell your guests how they’re expected to behave whilst staying at your property, what is prohibited and how to leave your property at the end of their stay. Your booking terms and conditions should include all your specific house rules and any breaches which would result in full or partial loss of the damage deposit.
Have a plan to identify damage
To avoid disputes, it’s essential that you have a system in place to identify when damage occurred so you can prove who is responsible. If damage only comes to light when it’s too late to identify who was responsible, then the whole point of taking a damage deposit is futile.
The simplest way is to inspect your holiday home and take photos/videos before and after every changeover. This way you have evidence of what condition your holiday home was in when the guest arrived and its condition when they left. Cleaning and turnover apps have features that enable this.
Encourage guests to contact you if anything gets broken or damaged
This will enable you to ensure that any visitor damage or accidental breakages are dealt with promptly before they impact the next set of guests.
Don’t sweat the small stuff
If the damage is minor, clearly accidental (e.g. scuff marks on the walls or make-up on towels) or the guest tries to clean the spillage or offers to pay – use your judgment and weigh the pros and cons of withholding the security deposit. Normal wear and tear and mishaps come with the territory when holiday letting and should be factored into your rates.
Deducting from the security deposit for minor damage can leave guests with a bad feeling after having a great holiday. This can impact their desire to return or they could leave a negative review if they feel slighted.
Stand by your decision
There will be incidents when damage is due to negligence or deliberate e.g. no effort made to clean up vomit, smoking, an attempt to hide a stain or holes in the wall. Don’t be afraid to deduct from the security deposit when the guest has been negligent, that’s the whole point of taking one.
Don’t’ deduct from the damage deposit unless you are certain
Unless you are 100% certain who is responsible for the damage, don’t deduct from the damage deposit. Disputes are difficult to resolve without proof and will only consume your time, morale, and lead to a negative review. If you suspect the guest is guilty but can’t prove it, simply put them on your never-rent-to-again list.
Return the security deposit promptly
Inspect your property for damage as soon as your guests leave so you can return the deposit either partially or in full as quickly as possible. Guests should not have to contact you after check-out to get their security deposit back.
Tips when withholding or deducting from the security deposit
If guests have damaged your holiday home and you intend to retain a portion or all of their deposit, you should inform them immediately. Include any evidence to support your reason – photos/video and a copy of your house rule that has been breached. Although it’s annoying that your property hasn’t been treated with respect, be professional and keep your emotions out of it.
Only deduct from the security deposit a reasonable amount to cover your loss and allow for depreciation where necessary. You can’t expect a guest to pay to replace a stained rug ‘new for old’ if it’s 10 years old and worn.
Also, send guests an itemised list of the replacement or repair costs as proof.
Here’s a sample email that you could send:
Hi, [guest name]. I hope you enjoyed your holiday in [property name]. Unfortunately, after your stay, our cleaner reported some damage during the walkthrough inspection [give details of the loss or damage]. I’ve attached photos of the property before and after your stay to clarify this happened during your stay.
I’m sure it wasn’t intentional, but as per our booking terms and conditions, we’ll be retaining [amount] from your security deposit to cover the cost incurred and refunding [amount if relevant] being the remainder of the deposit.
I’ve also attached receipts detailing the cost to repair the damage [or replace items].
Most guests will apologise for the damage and pay. However, there will be those who will insist the damage was there when they arrived and contest paying for the damage.
Politely but firmly tell them that they agreed to be charged for damage in their rental agreement, and that you have evidence that proves that the damage occurred during their stay. Typically, this puts an end to disputes so you can move on.
Some guests may threaten to criticise you on social media and leave a bad review if you don’t return their deposit in full. Don’t worry, you can report their threats to the listing or review site in question. They will generally remove unfounded reviews. If the bad review goes live, reply, explaining your side of events. Your supporting evidence should work in your favour and prove that the guest was in the wrong.
What if the cost of the damage exceeds the damage deposit amount?
Although few and far between, there will be occasions when the loss or damage will cost more to repair than the damage deposit taken. You can attempt to recuperate the extra costs from the guest. If the guest has been honest and reported the damage themselves then this should be straightforward.
If the guest refuses to pay, then you can absorb the costs as ‘being the nature of the business’ or claim on your holiday letting insurance.
Otherwise, usually as a last resort, you can potentially take legal action to recover expenses via the small claims court. However, this can sometimes end up costing more in the long run and be stressful.
Whether you take a security deposit or not, comprehensive holiday leting insurance that covers loss or damage to your holiday rental is essential.
Check the terms of the insurance so you understand what is and isn’t covered before purchasing. Some insurers limit the amount they will cover for specific items. Also, some policies don’t cover damage by dogs or malicious damage (note our policy does).
Damage deposits are one of the most effective ways to safeguard against out-of-pocket expenses due to damage by careless guests. While they can be off-putting for some, they won’t be an issue for responsible renters who will leave the property as they found it and get their deposit back.
To avoid nasty disputes over damage to your property, ensure you have a system in place to identify when the damage occurred and prove who is responsible.
Remember, accidents happen, and sometimes it’s better to keep the goodwill with your guests if it’s a genuine accident or a small incident. Rather than withholding their security deposit, tell them it’s no big deal. You are more likely to get a positive review and a guest who returns for another stay. In the unfortunate event that the damage is substantial, it’s essential that you have adequate insurance to protect you.
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