Although there are several grey areas of property management, perhaps one of the most contentious between landlords and tenants is the issue of damage to the property. It’s especially an issue for landlords who are viewing their property for the first time in several years and become shocked at the difference in how they expected it to look versus the reality.
First the official definition: according to the Department of Fair Trading, deterioration that occurs over time with the use of the premises, even though the premises receive reasonable care and maintenance, is known as fair wear and tear.
The deterioration could be caused by time, exposure, or just by ordinary use. The tenant is not liable for the cost of repairing damage that is considered fair wear and tear.
On the other hand, damage that is caused maliciously or negligently is the responsibility of the tenant. Although some personal judgement needs to be exercised in individual cases, one example of the difference might be scuffed floorboards (landlord’s responsibility) versus badly scratched or gouged floors (tenant’s responsibility).
There is one other thing that will need to be considered in determining responsibility though – the age of the material under consideration. Carpets, for example, are usually depreciated over seven years so any repair or replacement required for carpets older than that may still be the landlords responsibility, even if there is damage that otherwise might be considered the tenants responsibility.
The flip side of the limitation in holding tenants responsible for fair wear and tear, is the right for the landlord to claim depreciation on the property as a deduction in their annual tax return. Although accounts vary, it’s estimated that up to 80% of all landlords do not claim any or all of the depreciation they are eligible to. Make a plan. It’s important for anyone investing in property to have a strategy and exit plan in place for how you are going to get out. It usually takes 10 years to make it worthwhile. Part of the planning is to have a disaster plan in place which needs to include insurance, in particular landlord and income protection.
With effective property management, landlords will be covered for all damage to their property, whether fair wear and tear or otherwise. With an annually updated professional depreciation schedule and careful regular inspections by the landlord or their managing agent, effective classification can be made of any deterioration to the property and the appropriate resultant action taken.