Rental Deposit Replacement Schemes – What You Need To Consider

19th August 2019
Julia Willis

Landlords or their letting agents cannot compel new tenants to use a deposit replacement scheme, but it is permissible under the Tenant Fee Ban and may be a good option for tenants concerned about meeting their financial obligations.

It is also true that some tenant activists view these schemes as a way for letting agents, who lost fees with the introduction of the Tenant Fee Ban, to recoup some income through commission paid on sale of each policy. Georgie Laming of Generation Rent says “They are targeting people who can’t afford deposits upfront…..”

The Property Ombudsman also has concerns. It has received complaints relating to tenants who assume they are buying an insurance policy that covers any (and all) damage, not realising that while the landlord is reimbursed, the insurers will recover costs from them, the tenant.

To maintain hard fought for and well-established reputations letting agents must ensure they are well informed about the deposit replacement product or products they intend to offer. Communicating the terms and conditions to both landlords and tenants is essential. Both must understand what the tenant is buying in to, and that there are no unexpected surprises at the end of a tenancy covered by such a scheme.

For instance, if tenants no longer have to worry about losing a large deposit because they’ve signed up to a scheme, will cleaning a wine-spill from a carpet no longer be a priority because it will be covered under the scheme – won’t it? Will these schemes make tenants less concerned about the condition in which they leave a rental property at check-out?

Agents must fully understand and educate their new tenants on the ins and outs before they sell / buy a deposit replacement scheme.

Agents who opt out of such alternative deposit options should be aware that other, possibly less scrupulous, agencies may be more attractive to new tenants because they are providing such schemes. Would this present an unfair advantage?

And landlords must be fully cognisant of the cover. Will wilful damage be included in the scheme? If the ‘provider’ cannot recover funds from the perpetrator, is the landlord protected against all financial loss?

Peter Savage, ex-president of ARLA Property and recently appointed spokesman and ‘champion’ for leading replacement scheme provider Zero Deposit, considers a regulated marketplace a necessary evolution. Going forward, is Financial Conduct Authority (FCA) regulation necessary for all schemes?

Provider Zero Deposit already has regulated status with the FCA and has recently signed-up to an exclusive supplier deal with the National Landlords Association, having already secured a similar agreement with the Residential Landlords Association (RLA).

While this article may have presented more questions than answers it is intended to inform and be thought provoking. We hope it has achieved its aim.

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