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What Does Zero Deposit Mean When Renting?

Many letting agents these days are offering landlords the option of taking up a ‘nil deposit scheme.’  

But what is it – and why should you go ahead with it? Also referred to as a Deposit Replacement Scheme (DRS) this does away with the need for a landlord to register a tenant’s deposit with one of the statutory schemes, amongst other benefits for both partiers of the agreement!

What Does Zero Deposit Mean When Renting?

What Is a Deposit Replacement Scheme? 

Simply put, a deposit replacement scheme is an alternative to the traditional and commonly found security deposit. Sometimes referred to as the “tenancy deposit”, these see renters typically pay landlords as much as five weeks rent before even moving into the property. This is with good reason as the provided sums are then safeguarded until the end of the tenancy, with deductions being made from the amount being returned to the tenant if they have missed any rental payments, or damaged the property and its contents.  

How to Deposit Replacement Schemes Work?   

Alternatively, if a deposit replacement scheme is used by the tenant, although they will not have a significant upfront cost to face before moving in, they will still be liable for any repairs or arrears come the end of the tenancy. Rather than have the appropriate amounts deducted from returned security deposit, tenants will simply pay these charges in full before moving out.  

This often works to the advantage of both the tenant and the landlord, as once the fixed term comes to a close if the owners wish to make any deductions, they commonly have increased financial protection from the tenant; being able to claim for costs up to approximately eight weeks rent. Again, this “eight weeks” worth of rent is not paid for by the tenant before moving in, but is instead a financial limit for the landlord’s claims.  

Similarly, to a traditional security deposit, the occupants are able to dispute any “deductions” and contest any claims that they have caused damage to the property. In such instances the dispute will be handled in a manner similar to a normal deposit, seeing the evidence supplied by both the landlord and tenant be evaluated by an impartial dispute resolution service. This service will reach a ruling on which of the landlord’s deductions will be upheld, adding to the amount the tenant must pay.

Is Zero Deposit Scheme Good for Tenants 

As mentioned, the traditional tenancy deposit can see tenants pay many weeks rent before moving into the property; this alongside the holding deposit and any rent in advance that the landlord has requested can see the initial costs of renting skyrocket for the occupant.  

Whilst some may argue that the limits placed on the amount’s landlords can request their tenants pay for the tenancy deposit, preventing properties with an annual rental charge of under £50,000 from taking more than five weeks rent, sufficiently reduces the upfront costs to renting. However, as the name suggests deposit replacement schemes allow tenant to forgo this expense altogether, making the private rental sector far more accessible, alongside potentially providing landlords with a pool of new tenants. 

Do You Get Your Zero Deposit Back?

Although when using a deposit replacement scheme tenants will not be required to pay the commonly requested, five weeks rent to the landlord, a far smaller initial, non-refundable fee will be paid to the provider.   

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How Do I Qualify for Zero Deposit? 

The exact requirements for qualifying to get a zero-deposit tenancy will likely vary slightly between providers; however, it’s commonly expected that tenants pass all referencing and affordability checks prior to the tenancy, with any guarantors also passing the appropriate screening. It is further generally required that the fee for the deposit replacement service is paid in full prior to the tenancy beginning.  

Whilst this will dramatically reduce the tenant’s initial exposure to rental fees it is important to note that it is not uncommon for these schemes to have annual renewal fees, or charge for the service on a monthly basis, sometimes costing renters far more than a traditional security deposit over the course of a tenancy. 

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