Alternative tenancy deposit schemes They seem like a great idea – instead of stumping up thousands of pounds for a tenancy deposit, tenants just pay a modest fee.
So much more affordable. What’s not to like?
Well, as I found out recently, you need to be careful. Very careful.
Last week I travelled down to Hamilton Fraser to do some interviews for my forthcoming online training course Managing Your Rented Property within the Law.
My interview with Eddie Hooker and Suzy Hershman on alternative tenancy deposit schemes was a real eye-opener for me.
For a start –
Alternative Tenancy Deposits are NOT an insurance product. They are a guarantee.
The tenant pays for a guarantee product which will pay the landlord up to a certain sum if the landlord suffers loss due to the tenants’ breach of the tenancy agreement – such as unpaid rent, damaged items, cleaning etc.
However, with an alternative tenancy deposit scheme, unlike a traditional deposit:
The landlord will not have the money to hand – he (or she) will have to apply for it
If the matter goes to adjudication there will usually be a fee payable for this (as opposed to traditional deposits where the adjudication is free)
If tenants do not pay up they will be chased by debt collectors on behalf of the deposit company which could affect their credit rating.
Alternative Tenancy Deposit Schemes – Let the Buyer Beware
There is a lot of variation between alternative tenancy deposit schemes. Here are the sorts of things you need to be considering
Is the company regulated? For example, Zero Deposits tell us that landlords will be covered by the Financial Services Compensation Scheme and that all customers have access to the Financial Ombudsman Service. What about the scheme YOU are being sold? Will you have this sort of protection? (Tip – if it’s not mentioned on the scheme website – you won’t)
Who owns or are behind the scheme? Is it a large company backed by or in partnership with an insurance firm? Or is it, say, the letting agency’s own scheme? If so – what is your protection (if you are a landlord) if they go out of business? Tenancies can go on for a long time.
How is the scheme being sold to tenants? If you are a landlord, remember that under agency law you are legally responsible for everything your agent does. Under the Tenant Fees Act, 2019 tenants need to be given a genuine choice. If this is found not to be the case, you could be liable to your tenants and prosecuted by the authorities.
These are just a few of the points raised by Eddie and Suzy in my interview with them.
Eddie and Suzy made the point that alternative tenancy deposit schemes can be great – you just need to be careful and check that the scheme YOU are being sold is a good one and gives you proper protection.