A new tenancy deposit replacement product will put money in the pockets of letting agents each time a tenant takes up the option.
Designed to more than replace the loss of income when the fees ban comes in, it is likely to average £250, and in London to be some £350.
The money will be earned through agents offering a range of products, including the deposit replacement product.
The proposition has been developed jointly by referencing and insurance firm Let Alliance and inventory specialist No Letting Go.
Their Nil Deposit Scheme has been in pilot mode since last September.
As with other schemes, incoming tenants are given the choice of paying the normal six-week deposit money, or an insurance produce equal to one week’s rent.
Andy Halstead, of Let Alliance, says that current indications are that 70% of tenants are opting for the insurance solution.
Halstead said the trial has proved “very successful”, particularly in situations where a tenant already has a previous six-week cash deposit tied up with a previous property.
He admits he was initially sceptical about the emerging deposit replacement schemes, but says customer research and feedback from tenants changed his mind.
Halstead – whose son heads up a family lettings agency in Cheshire – said: “We are letting agents ourselves and for me nothing quite replaces the cash deposit in terms of security for landlords and a demonstration of commitment from tenants.
“This meant we needed to develop a scheme that effectively replaced a cash deposit in every way for it to have any chance of getting off the ground.
“We have done exactly that.”
The new proposition includes Nil Deposit, tenant referencing, inventory software, a rent guarantee, and tenants’ liability and contents insurance.
Nick Lyons, founder of No Letting Go, described it as an “unrivalled proposition to letting agents”.
Halstead added: “Let Alliance works exclusively with letting agents and for the last 12 months our mission has been to develop a ‘fit for the future’ proposition that more than replaces fees that will be lost from tenants.
“If there was a silver bullet we would have found it.
“There isn’t, so partners and suppliers to letting agents need to collaborate, innovate and deliver value.
“If our customers thrive, then so do we.”
Does the landlord have any say in this? What if a tenant wants to opt for the deposit replacement scheme but the landlord wants the cash deposit?
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A landlord is absolutely entitled to require a cash deposit (and IMO he should).
On the other hand, after the fees ban a landlord won’t be allowed to require use of such a ‘replacement’ scheme. In fact, it might not be possible to charge the tenant at all for using such a scheme.
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Charlotte, I can only assume you would never offer the deposit replacement shcmee to the tenant in the first place.
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If there is no deposit held under a deposit scheme, then there is no need for prescribed information, and guides relating to deposits to be issued at the start of the tenancy – but if these aren’t issued then seeking possession via S21(form 6a) will be difficult as the agent is non compliant with the rules of 6a, but serving those documents will be very confusing for a tenant who’d have no recourse to arbitration in any event.
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This should not be a problem with a form 6A section 21 claim, any more than not taking a deposit is. The requirements for form 6A only require you to have complied with deposit legislation, and if there is no legislation because you have not taken a deposit, then I cannot see that this is a problem (not saying you won’t have to explain it to a judge though!) Essentially this is the requirements of section 215 of the Housing Act 2004 which only limits the section 21 service where a deposit has been paid. Likewise question 7 on the new N5B starts by asking if a deposit has been paid and in the scheme, one would simply say “No”, as indeed no deposit would have been paid.
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Fair enough – I suspect the debate with a judge might be an interesting one…
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Form 6A does not change the rules of section 21.
If no deposit was taken then it will be clearly indicated on form N5b (old or new version) and the Court won’t even ask for those inexistent prescribed information.
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Does this mean that the tenant will be insured against damage and unpaid rent?
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I understand that the tenant will be chase by the insurance company not the landlord/agent.
The tenant just needs to decide what us better for them financially i.e. one week fee which is non refundable, or stumping up 6 weeks deposit (which maybe refundable)
The next question, would this fall foul of the tenant fee ban? Important to find out before you start rolling it out IMHO.
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This would not be affected by the tenant fee ban provided the tenant has a choice and it is not a fee upon which the grant of the tenancy is contingent.
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Our experience with ‘No Letting Go’ ( aside from the interesting choice of name) franchisees ( don’t ask)has not been a positive one.
suffice to say, we won’t be giving this scheme the benefit of the doubt
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I’m sorry to hear that proper21. It you are willing to give me a call on our HO number 01322 555 128, I would like to understand what went wrong and see if we can rectify it.
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Good afternoon everyone, just dealing with the points raised;
Cbrotherhood; Let Alliance deals exclusively with letting agents and any decision regarding tenants being offered the Nil Deposit option is between the agent and their landlord customer
Romain; the whole proposition is based on choice for the tenant, so fully compliant with the draft fee ban legislation
DarrelKwong43; spot on, when a claim has been paid, it is for Let Alliance to pursue any recoveries, not the letting agent or landlord
Daviddortongibson; this is correct, the Let Alliance Nil Deposit is not a deposit, it is a contract between Let Alliance and the letting agent and between Let Alliance and the tenant. Deposit legislation does not apply
proper21; very sorry to hear this, if given the chance I am sure we can fix things going forward
The partnership between Let Alliance and No Lettings Go makes the whole process, end to end, fully integrated with our referencing services, rent guarantee and tenants liability insurance. The inventory, mid term inspections and check our reports are all held on file and automatically used to support claims at the end of tenancy.
Andy
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‘The partnership between Let Alliance and No Lettings Go makes the whole process, end to end, fully integrated with our referencing services, rent guarantee and’…….
Not if No Lettings (sic) Go are as bad as Proper21 suggests. Our experience of them has been poor too.
And how does an agent make £250 per let from this product? Av rent in this part of the world is £750; if premium is equivalent to 1 week’s rent that comes to £173. Surely, the commission is only going to be circa £20 at most. I’d much rather forgo £20 for the certainty of having 6 weeks cash deposit – I’m out.
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Hi George, whilst we have a partnership with KAPTUR (no lettings go software) we also accept all recognised inventory suppliers and in-house processes. The earnings quoted are genereted from the overall propsotion, Nil Depsoit is just one element. Andy.
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Hi George, could you get in touch with me at No Letting Go 01322 555 128 – I would like to understand what went wrong and try and resolve it.
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Question: “A new tenancy deposit replacement product will put money in the pockets of letting agents each time a tenant takes up the option”. Is this not supposed to be paid to the landlord? You may wish to review recent case law before shooting from hip.
What is the commitment by the tenant. Before it was to loose their money if they didn’t behave. Is this a cheaper option to say, stuff the landlord I have insurance cover for the landlord and I can misbehave! No wonder tenant love the scheme.
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Letting Agents earn commission, the tenats have a contract with Let Alliance. The landlord is protected with 6 weeks rent as cover for all the things a traditional depsoit covers. If the tenat fails to pay, it is our concern, not the agents or the landlords. We guarantee more than 60,000 rents so have good experience if pursuing tenats when they fail to meet their obligations. Andy
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So what is the commitment to the tenant behave? There are many landlord’s who consider the property can be their heart and sole, many don’t want the accident to happen in the first place and then have to go through the process of having it repaired. Prevention is better than the medicine. There is a side to the venture to make it easier for tenant not have to a commitment. Golden rule of lettings, “commitment by the tenant”.
The “principle” of banning fees is an absolute joke, it should be capped referencing and deposit retained. Providing a sticking plaster insurance policy is not the answer and handed an own goal to the government.
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What if the landlord decides to “sack” the agent? How is the landlord then protected as there is no deposit to be handed over to the landlord?
It would take a lot to make me happy with this as a landlord, knowing that it lets the agent collect more money, and hence not being able to trust anything the agent says about it will not help.
(Remember I may keep a tenant for 20 years, so how can I trust a company to remain for that long?)
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