How to be Ready for a Deposit Replacement Scheme

by Gary Whittaker

Raising a deposit for a new property before getting the previous one back is just one of the difficult situations faced by tenants and their landlords. According to government rules, deposits should be returned within 10 days of the end of a tenancy, but disputes mean it often takes far longer.

Deposit replacement schemes have emerged as an alternative solution offering deposit-free renting.

The market for these products has become increasingly competitive along with their popularity among tenants. The schemes mean their cash isn t tied up in a deposit but tenants only have to pay a small non-returnable fee for the insurance instead.

So how do they work and how can businesses or landlords prepare for deposit replacement?

Deposit Replacement Insurance Changes Renting for All Parties

Looking at deposit figures it s easy to understand why these schemes are becoming popular. According to the Tenancy Deposit Scheme, the average deposit in England and Wales is £1,041, while deposits in London are typically in the region of £1,750. Latest figures show that almost 47% of deposits were one month s rent. However, more than 40% were for more.

For those straight out of education and looking to get on the first rung of the property ladder then an alternative to deposits could be the answer.

An insurance policy covers the equivalent of several weeks rent. This helps tenants with cash flow while landlords are still covered for the full deposit. Tenants will only need to pay for damage or unpaid rent at the end of the tenancy under a clause called subrogation .

An insurance company that intends to recover any claim will need an inventory check in and check out report as evidence so the agent or landlord to make any claims on the insurance.

Inventory reports are held on file and used to support claims at the end of the tenancy. If landlords and agents opt for deposit replacement insurance then a professional inventory from a third party can provide the detailed evidence required when making a claim.

For letting agents that will be hit by the tenant fees ban (possibly in mid-2019) it s hard to replace the cash deposit in terms of security for landlords and a demonstration of commitment from tenants.

However, deposit replacement schemes are being described as fit for the future and replace even more than the fees that will be lost from tenants.

How can Landlords be Covered '

Landlords need to look at the full policy on offer and make sure it covers them in all situations. They should also investigate the procedures for dispute resolution and the timelines involved in approving a claim.

ARLA Propertymark issued a concern that tenants may be less likely to maintain the property or pay up outstanding rent if their deposit is not on the line. A detailed inventory will improve the chance of a property being returned in a good condition. An inspection date where tenants can sign an inspection report is good evidence for any dispute. Once the tenancy comes to an end, landlords should agree a time and date for the check-out, using the inventory as a guide for the check-out and asking the tenant to sign the report. If there are any items missing or even damaged, landlords

should try to agree a figure to cover or part-cover the cost. It is a far better solution to amicably agree this figure than go to dispute.

The National Landlords Association recommends asking a number of questions before carefully deciding which scheme to choose: Is the cover provided by the policy sufficient, and are you confident it will pay out' Are the actions of uninsured third parties (visitors or unauthorised sub-tenants) covered? What is your right of appeal if a claim is denied? If the scheme is collecting rent, does it have adequate client money protection insurance?

Letting Agents Embracing the Future Without Deposits

Under a deposit replacement scheme, landlords can still benefit without the presence of a traditional deposit. There are also a number of positives for letting agents to weigh up as well.

Agents can decide how much to charge tenants because they re the ones who are insured. Without the requirement of a six-week deposit, tenants could save hundreds of pounds so deposit replacement insurance can effectively generate more applications and interest to listed properties. If tenants can move in quicker without having to wait for their payday or for the previous deposit to be returned then there are less void periods and properties can be let faster.

By eliminating more of the time and expense of registering deposits, as well as the risk of legal action for not complying with deposit protection rules, it reduces administration work for agents.

Don t Take Chances with the Inventory

Although there are plenty of examples and templates for inventories, there is no better way of doing this than enlisting the help of professional inventory clerks. To support your inventory, ensure the tenancy agreement states who is responsible for the gardens if applicable and cleaning upon check-out. Conduct a pre-check out inspection with the tenant to help identify any potential issues, giving the tenant the opportunity to rectify these.

This article was contributed by Assist Inventories.