Tenant Fees Act and deposit schemes
It has now been three years since the introduction of the Tenant Fees Act in England, yet our landlord advice team still take calls from landlords who want to clarify how the legislation impacts their business. This month's caller wanted to know more about zero deposit schemes.
The issue
A landlord gave our advice team a call as they were hoping to create a new tenancy, but did not want to use a deposit.
They want to use a scheme known as a zero deposit scheme.
The member was concerned, because zero deposit schemes operate by the tenant paying a fee to a company - usually equal to one week’s worth of rent - and that company scheme provides them with 'cover' for rent or damages up to an amount. This is often five or six weeks’ worth of rent.
However, our landlord had also recently read up on the tenant fees ban rules, which state that landlords and agents are banned from requiring a payment to a third party as a condition of granting a tenancy.
Our landlord had never used a deposit alternative before, and they wanted to understand where they stood legally if they were to go down this route, given the fees may be banned under the legislation.
The solution
Our advisor explained that the landlord could could offer two alternative options; a permitted payment and a prohibited payment. Provided that choice is available and the tenant is free to choose their preferred option, then a zero deposit scheme is acceptable under the Tenant Fees Act.
In this case the choice would be between:
-
A security deposit that would be protected in a government approved scheme. This is a permitted fee under the Tenant Fees Act.
or -
Paying the smaller fee for the deposit alternative insurance.
Where the tenant chooses a zero deposit option, landlords should ensure that that they have read the additional terms that the scheme requires. These clauses typically include requirements like paying a security deposit should the tenant cancel their zero deposit scheme insurance.
Our adviser suggested the landlord contact the prospective tenant and discuss all the deposit options with them to check which option they’d like to go with.
- To understand more about the Tenant Fees Act in England, read our toolkit for landlords which also includes downloadable forms.
- Landlord with a rental property in Wales? Learn more about the Welsh Tenant Fees Ban in our guide for landlords