Published 15 April 2019

image of the word fees on scrabble tiles surrounded by percentage signs It is less than two months to go now before the introduction of the Tenant Fee Ban. Much of the media coverage surrounding this piece of legislation has focussed on the upfront costs that most tenants currently pay when they enter into a new tenancy.  These costs are considered to cover referencing, carrying out credit checks, preparing tenancy agreements and schedules of condition, deposit protection and carrying out Right To Rent checks.

But from 1 June, any costs associated with a new tenancy, referred to as Prohibited Payments, cannot be charged to the incoming tenant.  Some fees will still be allowed, such as if a tenant loses their keys, or in the event that rent has not been paid.

On the back of the Tenant Fees Act we have seen the emergence of Zero Deposit Guarantees (ZDG).  These are an alternative to the conventional cash deposit, and are intended as an option for both the landlord and tenant to agree upon, prior to the start of the tenancy. 

Part of the Tenant Fees Act includes a limit on the amount of deposit that a landlord can charge.  This will be capped at the equivalent of five weeks’ rent, and will be held in the conventional way in a Tenancy Deposit Scheme.

The alternative is a ZDG.  There are a number of different versions of this format, but they are all intended to provide benefits to both landlords and tenants.  For the tenant there is the reduced-upfront costs, with a typical ZDG amounting to one week’s rent.  This may give the tenant the ability to move between properties faster without having to fund a second deposit.

However, there may be other ongoing costs for the duration of the tenancy and unlike the conventional deposit, none of this will be refundable at the end of the tenancy.

From a landlord’s perspective the principal benefit is that a ZDG can potentially speed up the rental process, thus avoiding long void periods, as well as giving a greater choice of tenant.  Many of the ZDG products also provide added protection in the form of guarantees beyond the five week conventional deposit cap, and may be for the equivalent of six weeks or more. 

At the end of a tenancy, the usual check out report is undertaken, and in the event of damages beyond normal wear and tear, the costs are settled by the tenant or, if disputed and found in the landlord’s favour, met by the ZDG provider, who will then seek to recover those costs from the tenant.

Such action may impact on the tenant’s credit history and ability to obtain finance going forward if they fail to pay – although fortunately fewer than one per cent of tenancies end in dispute.

With yet another new piece of regulation and the introduction of the new Zero Deposit Guarantee scheme, it is more important than ever for landlords to understand their responsibilities – which is why more and more are turning to an agent to manage the process and ensure they comply with the law.

Phil Cooper | Lettings Partner

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