On 1st June this year, the Tenant Fee Ban will come into force. Over the past few years, since the bill started the parliamentary journey in November 2017, the industry talk has been about ‘helping tenants’, ‘removing the burden of being a long-term renter’, ‘assisting FTB saving’ and ‘reducing the barriers to renting the perfect home’. In that vein, alongside the ban on fees, the ‘zero’ deposit solution emerged.
These are effectively insurance policies, which a tenant can take out at the start of their tenancy, usually for a fixed fee equivalent to one week’s tent, and they will cover the landlord for any deposit deductions (as required) at the end of the tenancy. Obviously, subject to the usual proof from an in-going inventory and schedule of condition.
There are many of these schemes now available, and it is likely that there will be more over the coming years, but we’ll focus on 3 and look at their details:
- Tenant pays the equivalent of one week’s rent and an ongoing annual administration fee of £26. Any change to tenants in the property will incur an administration fee of £40.
- Backed and underwritten by Great Lakes Insurance SE (German Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority.
- Landlord covered for financial loss or damage for which your tenants are liable under the Assured Shorthold Tenancy Agreement, up to the value of 6 weeks’ rent.
- Disputes are assessed by our expert evaluation partner, The Dispute Service. All TDS adjudicators belong to the Chartered Institute of Arbitrators and comply with their Adjudicator Code of Conduct.
- Tenant pays 1 week’s rent and an annual administration fee of £30 for topping-up. In the rare circumstance that the tenant does not pay the renewal charge, the Landlord will still be covered by the policy.
- Available to any Tenants who pass referencing checks or who has a referenced guarantor and also available to tenants receiving DSS or students with no credit score as long as the landlord/letting agent references a guarantor on the tenant’s behalf.
- Reposit protects Landlords by adding them as a beneficiary to Reposit’s insurance policy underwritten by Canopius Managing Agents, Lloyds Syndicate 4444, who will endeavour to repay any agreed loss within 28 days.
- Landlord covered for financial loss or damage for which your tenants are liable under the Assured Shorthold Tenancy Agreement, up to the value of 8 weeks’ rent. This includes but is not limited to, any damages to the property or garden, missing items, unpaid rent and cleaning costs.
- An independent arbiter will assess damages at the end of the tenancy and award monies based on factual evidence presented by both parties. If the arbiter concludes, that all monies should be awarded wholly in favour of the Landlord, a £120.00 admin charge will be added to the balance owed by the tenant.
Let Alliance Nil Deposit Scheme
- The tenant pays a Nil Deposit service charge of 1 week’s rent + VAT (letting agent receives 20% rebate as commission).
- The Nil Deposit Service manages the payment of any entitlement to the landlord from the tenant, up to a maximum of 6 weeks’ rent, for any breach of the tenancy agreement that is mutually agreed.
- Tenants MUST be fully referenced using the Let Alliance Ultimate or Ultimate Global product.
- The tenant reimburses Let Alliance for the sum agreed, or determined by an independent adjudicator in the case of a dispute, within 14 days of notification.
- For rentals with more than one tenant, a lead tenant is nominated.
- Tenants’ accidental liability insurance of £5,000 is included for the complete tenancy term.
- Let Alliance is an appointed representative of Advent Solutions Management Ltd who is authorised and regulated by the Financial Conduct Authority, No. 308751.
So what are the pros and cons of choosing a no deposit scheme instead of a traditional 5-week deposit?
Tenants can move between one rental property and another much quicker and with less stress because they aren’t waiting for the return of their money before they can move into the next.
There is no need to obtain a bridging loan between properties if the tenant needs to move directly from one home to another (which is the norm).
There is no requirement to protect a deposit, no prescribed information or admin required from the agent with regards to the TDS, DPS etc.
There is no money sitting in a client deposit account for years that cannot be touched by anyone.
It is new so until it has been used at the end of tenancies (with UK average tenancy lengths growing, this could be 18-24 months to get a good idea of the results) it is impossible to know how the end of tenancy situation will work.
Landlords could feel as though the in-going tenant might not have ‘skin in the game’ and could, therefore, take less care of the property.
Who oversees these policies and offers resolution if something goes wrong?