Some rental properties are offered with "zero deposit". The fee is normally about one week's rent. You won't get this fee back at the end of your tenancy and you will still be responsible for paying the landlord for any rent arrears you owe or damages you have caused.
What does "zero deposit" mean?
When you look for a new tenancy, some advertisements will say that the property is available with zero deposit. This means that you don't have to pay a full deposit. Instead, you pay a fee to a zero deposit company. The fee is usually about one week's rent.
How does "zero deposit" work?
Your fee pays for an insurance policy for your landlord. This covers the landlord for rent arrears or damages up to a certain value. At the end of the tenancy, the landlord can ask the zero deposit company to reimburse him or her for damages or rent arrears up to this value.
What happens if the property is damaged or rent is owed?
The zero deposit company will pay the landlord for damages or missing rent up to a certain value. You will then have to pay the company this money. The fee that you originally paid isn't deducted from the damages owed. If you don't pay the money, the zero deposit company will pass your debt to a debt collecting company, and could eventually take legal action to recover the money from you.
Disputing the charges
Most of the zero deposit companies give the tenant a chance to contest the charges the landlord wants to make. This is called adjudication. The landlord should only make deductions if he or she can prove that you are responsible for paying these charges.
Is this cheaper for tenants?
In the short-term, this type of policy could be cheaper for tenants. But, it's important to remember that when you pay a deposit you should get this back unless you owe rent or have caused damage to a property. When you pay a "zero deposit" fee you will never get the money back AND the money can't be used to reduce any deductions at the end of your tenancy.
Get advice if you're considering this option.