Zero deposit scheme?

Zero deposit scheme?

9:35 AM, 4th May 2023, About 10 months ago 20

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Hello, is the zero deposit scheme a better option than a normal 5 weeks deposit? I have an agent looking for a tenant and he’s pitched both options as available to an incoming tenant.

I am looking for pros and cons for each from a landlord’s perspective, please.

How do I satisfy the deposit protection element (in case of eviction proceedings)? How easy is it to make a claim back to Zero Deposits?
Apparently each year the tenant has to pay £17 to insure them for the benefit of using the scheme, but I suppose it means they don’t have to fork out 6 week’s deposit upfront. I am concerned though if the tenant doesn’t pay this £17 annually how is the cover continued?

I normally just ask for 5-weeks deposit and then protect via DPS. I am in full control. Zero deposits insure me for a 6-week deposit instead.

TIA,

Reluctant landlord


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Comments

Dylan Morris

10:37 AM, 4th May 2023, About 10 months ago

I wouldn’t go anywhere near this type of scheme. If tenant can’t afford to pay the deposit from their own funds then they’re skint. How are they going to pay the rent if an emergency crops up ?

Ian Narbeth

14:56 PM, 4th May 2023, About 10 months ago

Make sure you don't fall foul of the Tenant Fees Act 2019. You cannot require the tenant to pay for the insurance. The landlord might do better to put the rent up and take out the insurance himself.

Dylan Morris

15:25 PM, 4th May 2023, About 10 months ago

If the rental market was in the doldrums and it was difficult finding tenants it would be an idea possibly to look at a scheme like this. But we have the opposite. Just find a tenant who can pay the deposit in the normal way (there’s loads of them out there) why do anything else ?

David Smith

19:06 PM, 4th May 2023, About 10 months ago

The problem with this scheme is the tenants have No Skin In The Game so have no incentive to look after the property.

You will be left claiming on insurance policy that won’t put your property back in the same condition.

Stay away from this.

Reluctant Landlord

9:44 AM, 5th May 2023, About 10 months ago

interesting as I have seen a number of lets online using this in their rental ads for the property.

T G

4:50 AM, 6th May 2023, About 10 months ago

A zero deposit scheme is a type of rental agreement that allows tenants to move into a rental property without paying a traditional security deposit. Instead of a deposit, tenants may be required to purchase an insurance policy that provides protection for the landlord against damage to the property or unpaid rent.

Under a zero deposit scheme, tenants may be able to move into a rental property more quickly and with less upfront cost than they would under a traditional rental agreement. However, it is important to carefully consider the costs and benefits of this type of scheme.

One potential benefit of a zero deposit scheme is that it can reduce the financial burden on tenants, who may not have the resources to pay a traditional security deposit. In addition, tenants may be more likely to choose a rental property that offers a zero deposit scheme over one that requires a large security deposit.

However, there are also potential downsides to a zero deposit scheme. For example, tenants may be required to pay a non-refundable fee for the insurance policy, which can be more expensive than a traditional security deposit. In addition, tenants may be responsible for paying the full cost of any damages to the property or unpaid rent, even if the insurance policy does not cover the full amount.

Overall, a zero deposit scheme can be a useful option for tenants who cannot afford a traditional security deposit. However, it is important to carefully read and understand the terms of the rental agreement and the insurance policy to ensure that you are fully aware of your financial obligations and protections under the scheme.

TheBiggerPicture

8:46 AM, 6th May 2023, About 10 months ago

Reply to the comment left by R H at 06/05/2023 - 04:50
Chat gpt?

Ian Narbeth

10:23 AM, 11th May 2023, About 10 months ago

Reply to the comment left by T G at 06/05/2023 - 04:50
" Instead of a deposit, tenants may be required to purchase an insurance policy that provides protection for the landlord against damage to the property or unpaid rent."

That is completely wrong. If the landlord or the letting agent requires it he will be in breach of the Tenant Fees Act 2019 and liable to a penalty of up to £5000.

Reluctant Landlord

12:06 PM, 11th May 2023, About 10 months ago

Reply to the comment left by Ian Narbeth at 11/05/2023 - 10:23
then how can these zero deposit/insurance companies exist?

Surely the point that the it IS insurance means there is no exchange of monies to warrant any breach in the TFA?

The gov website itself says From 1 June 2019, the only payments that landlords or letting agents CAN CHARGE to tenants in relation to new contracts are:

rent
a refundable tenancy deposit capped at no more than 5 weeks’ rent where the total annual rent is less than £50,000, or 6 weeks’ rent where the total annual rent is £50,000 or above
a refundable holding deposit (to reserve a property) capped at no more than 1 week’s rent
payments associated with early termination of the tenancy, when requested by the tenant
payments capped at £50 (or reasonably incurred costs, if higher) for the variation, assignment or novation of a tenancy
payments in respect of utilities, communication services, TV licence and Council Tax
a default fee for late payment of rent and replacement of a lost key/security device giving access to the housing, where required under a tenancy agreement

The landlord does not charge anything. The insurance policy that the tenant takes out IN PLACE OF A DEPOSIT is to mitigate against their own risk. The tenancy would have ended before the insurance is called upon IF necessary so I fail to see how this has anything to do with the TFA.

Ian Narbeth

12:16 PM, 11th May 2023, About 10 months ago

Section1(3) of the Act states:

"1(3) A landlord must not require a relevant person to enter into a contract with a
third party in connection with a tenancy of housing in England if that contract
is—
(a) a contract for the provision of a service, or
(b) a contract of insurance. "(emphasis mine).

The zero deposit companies exist because (a) the landlord can take out the policy and factor the cost into his rent or (b) the tenant can voluntarily offer a policy. The point is the tenant cannot be required to take out the insurance.

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