United Kingdom
December 2022
PayProp Rent Report

Letting agents accused of illegally pushing zero deposit schemes

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Are letting agents pressuring tenants to sign up for zero deposit schemes instead of traditional deposits, and are they breaching the Tenant Fees Act by doing so?

Earlier this month, the Observer newspaper spoke to tenants who said this had happened to them. Some had been advised by letting agents that the landlord would prefer a tenant who opted for a zero deposit scheme. Others were told outright that it was a condition of the tenancy.

Zero deposit schemes are cheaper for tenants upfront than traditional deposits, which are capped at five weeks’ rent for most properties. But unlike a traditional deposit, the money paid is not refundable at the end of the tenancy. Tenants may also have to pay additional renewal or adjudication fees, and remain liable for any damage to the property. There are also some reasons why landlords and agents might prefer them. Traditional deposits must be placed in a registered deposit protection scheme and can involve time-consuming dispute resolution at the end of a tenancy, whereas zero deposit schemes come with less admin. Letting agents can also earn commission by signing tenants up.

What does the law say?

 Making a zero deposit scheme mandatory is illegal. According to government guidance on tenant fees, agents “cannot require a tenant to use a deposit replacement product [instead of a traditional deposit] but may allow it as an option without contravening the tenant fees ban”.

But amid an ongoing shortage of rental properties, it can be difficult to tell the difference between a pressure-selling letting agent and an applicant desperate to look like the ideal tenant. Prospective tenants are already offering above-advertised rents and large up-front rent payments – and doing so unprompted. As the Observer report points out, some survey participants had been house-hunting for months without success.

National Trading Standards is now looking into the issue. James Munro, head of the agency’s Estate and Letting Agency Team, commented that forcing deposit replacement schemes on tenants is “bordering on discrimination”.

Meanwhile, zero deposit scheme providers are acting independently to prevent high-pressure sales. The chief executive of Zero Deposit, one of the biggest companies in the sector, has called for an industry code of conduct as well as caps on charges to tenants. Flatfair, another leading provider, has offered to work with partners to switch tenants over to traditional deposits and refund their fees.

 Other letting agent headlines

Rightmove lifts lid on agents’ workload in today’s market – Letting Agent Today

New analysis shows 2022 has been a record year for letting agent fines – Property Industry Eye

Majority of estate agents say they’ll work through to Christmas Eve – Property Reporter 

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