We like to think that we tackle some tricky topics where there are no “rights or wrongs” and numerous legitimate “for and against” reasons on both sides of the “No Deposit” debate.
We don’t currently tend to recommend “zero deposit” schemes to our Landlords for the simple reason that we very seldom get asked for them (but could do them if requested) – but Landlords & Tenants do sometimes ask us for our considered opinion.
Their key question to us is this: what is better than the traditional big lump of deposit money protected in a failsafe /fully regulated deposit scheme ?
Here it is important to bear in mind that some new Landlords are unaware that the 6 weeks’ (and above!) worth of rent that could have been taken as a deposit with a traditional AST ( Assured Freehold Tenancy) in the past has now been decreased to a 5 weeks maximum (6 weeks if annual rent is over £100,000) following the passage of the last Tenant Fees Bill. This means that if a tenant has rent arrears at the end of a tenancy, this could reduce the amount of deposit available to the Landlord to cover dilapidation’s . Landlords can also be left significantly out of pocket if the deposit is not anywhere near enough to cover the rent arrears plus any repairs needed.
So what is the case for zero deposit alternatives?
All these schemes – and there are numerous different providers / schemes – are based on the purchase by the tenant of an insurance policy instead of them paying a deposit . It is fair to say that some tenants do struggle to save the upfront deposit especially if the tenant is moving from one rental property to another. The deposit from the current property is not in every case refunded ahead of having to pay a new property’s deposit fee .Taking out a non-refundable insurance policy usually only costs around one week’s rent.
In a typical zero deposit scheme the Landlord is protected for 12 weeks’ worth of rent for arrears and damage and advertising a property as ‘deposit free’ may means shorter void periods and additional uptakes given the attraction of lower upfront costs to some tenants.
When it comes to the end of a tenancy and if there is a dispute, the provider will pay out up to 12 weeks rent straight away whilst they recover the costs which could be quicker than waiting for adjudication through the traditional deposit protection scheme. If costs exceed 12 weeks’ worth of rent, although you won’t get paid out straight away, your provider can seek to recover the additional funds on your behalf.
However – there is of course a case against the above way of working. There is a legitimate case to be made that any no deposit scheme does not automatically ensure that the tenants will be fully committed to the upkeep of the property. Without the promise of a refunded deposit, there is a risk that some tenants will not be completely incentivized into the maintenance of the property. Some tenants may also sign up to the scheme in the mistaken belief that they have pretty much absolved themselves from the responsibility of keeping the property in good condition. This misconception by tenants could lead to some Landlords being reluctant to take on tenants who wish to opt for one of these schemes. Properties rented under a typical zero deposit scheme are protected for around 8 weeks’ worth of rent. When the tenant is getting ready to move out, any unpaid rent or outstanding damage needs to be settled, just as if a deposit had been paid at the beginning of their tenancy. The insurance policy rests on the reality that tenants still remain accountable for any damage inflicted on the property or any unpaid rents.
If you wish to discuss the above or are interested in the Property market in Harrogate then please come along and see us and enjoy a free no obligation chat about the property services we provide.
Charles
