Mon 24 Feb 2020
Rachel North, Operations Manager
Tenant’s deposits are a hot topic right now. The Government included ‘lifetime deposits’ in their Renters’ Reform Bill and deposit replacement products continue to emerge. But what does it mean? Why the current interest? In a nutshell it is all part of the Government’s efforts to improve the experience of those living in the private rental sector and affordability (like abolishing tenant fees).
At the moment, most tenants pay a traditional deposit, typically the equivalent of 5 or 6 weeks rent, before the tenancy starts. That deposit must be registered and protected with a Government recognised scheme. At the end of the tenancy an inventory checkout process usually follows, and any claim against the deposit is submitted to the tenant for their agreement. Any agreed deductions are taken from the deposit before the balance is returned to the tenant. Unresolved disputes can be referred to an independent arbitrator for adjudication (usually at no cost to the tenant) causing further delays in the deposit balance being returned to the tenant. Tenants quite often do not receive their deposit back before they need to pay another deposit on their next rental property, which can lead to cash flow problems.
Deposit replacement products work on the general basis that no actual deposit sum is paid up front. Instead tenants typically make a non-refundable payment for the scheme before their tenancy starts, extending it if they stay at the same property after 12 months. The same end of tenancy and claim process follows and if there is an agreeable claim the tenant pays. If the condition is acceptable or the tenant settles the claim the scheme simply ends. In the event of a claim dispute an independent adjudicator can be appointed (which can incur a tenant cost). In any event, if the tenant fails to pay, the concept is that a claim is made under the deposit replacement insurance policy. The products usually provide landlords with protection equivalent to the traditional deposit amount and there is no need for the tenant to find the upfront lump sum at a time when moving costs can already be high.
There is eligibility criteria, costs, T&Cs and small print with all replacement products. Not all properties are marketed with this option. It’s down to individual landlord’s discretion. These products are a relatively new concept and all parties need to understand the pros and cons, costs and terms before proceeding. Landlords are still cautious and slow to take up these products particularly since the traditional system is so well established. Some products on the market have received bad press owing to the tenants potentially paying premiums that exceed the equivalent traditional deposit amount. AB are members of a zero-deposit scheme and ours is not one of those bad press products! If you would like more information, please contact either our East Grinstead office on 01342 321142 or Tunbridge Wells on 01892 525522.
The working idea of lifetime deposits (also known as deposit passporting) is that a tenant’s deposit is transferred from one landlord to the next. The tenant will pay one deposit that is not transferred back to them until they leave the rental sector and they keep it topped up. Again, it removes the need for them to pay an additional deposit to their new landlord before they receive their old one back. Lifetime deposits are in the early drafting stages and the Tenancy Deposit Protection working group are ironing out the implementing, operational and financial issues that they pose.
There is no indication that lifetime and deposit replacement products will replace the traditional deposit system. It is more about giving tenants options. No matter how a deposit is paid, tenants will be accountable for damages at the end of their tenancy and landlords will still be able to make a reasonable (substantiated) claim. This blog is a very simple overview and we recommend that you speak to our Lettings teams about all the options, or the Zero Deposit scheme we can offer.