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.
Interviewing Eddie
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.
Deposit protection regulations have been with us for over 12 years now and whenever I do a presentation at a landlord’s forum I can guarantee you that at least one landlord will come up to after the talk and say “This deposit protection Malarkey? Is there any way around it?”
What is the resistance to this? Your tenant pays you a deposit, protect it. I have not time for this mindset
The problems are more for tenants, who still have to wait to get their deposit back, when they need it to relocate. That is the true problem, for which a solution might be the talked about deposit passport, which is paid once and follows the tenant wherever they move.
The problem is disputes and adjudication, I’ve just carried one out for the first time in years. Some of the conclusions these clowns reach are staggering. The tenants replies to my rebuttal documents are a pack of lies and I don’t have photographs of the damaged items at the start of the tenancy, the adjudicator sides with the tenant. What inventory clerks take photos of the INSIDE of freezers and fridges or an empty driveway???
The adjudication IS the PROBLEM… they’re absolute clowns. That’s why your asked about ways round this time wasting tosh.
Make up poor legislation and people will find ways around it.
Rogue landlords simply take cash deposits.
Alternative deposit schemes (including council ‘bond’ schemes) are of dubious value. Before even considering such schemes, landlords should examine their actual payout rates.
Far better just to be very selective who you rent to and increase rents commensurately. i.e pocket the premiums and self-insure. Unfortunately this results in bad tenants being paid for by everyone else.
Personally, I take a traditional deposit as well as it helps weed out unsuitable applicants and shows responsibility. Tenants need some skin in the heavily loaded game.