Letting agencies are earning thousands of pounds in commission and in some cases flouting the ban on tenant fees by forcing renters to sign up to controversial “zero deposit” schemes, according to an article in The Observer at the weekend.
The publication claims that its investigation has uncovered cases where people were told to sign up to a ‘zero deposit’ scheme as a condition of their tenancy.
Such schemes usually involve the payment of a fee equal to about a week’s rent – instead of a standard deposit amounting to five week’s rent.
The Observer appeared put out that a zero deposit scheme does not relieve a tenant of their obligation to pay for damage to the property during their tenancy.
The article says: “unlike a traditional deposit, the fee is non-refundable, with tenants remaining liable for damages at the end of their tenancy. They can also face extra costs for membership renewals and – unlike with standard deposits – face fees for adjudication in the event of a dispute, leaving them worse off in the long run.”
Its says renters are routinely advised to take the zero-deposit option and that agents can earn up to 30% commission from the referral.
Interviewed for the article, David Votta, president of the Association of Residential Lettings Agents, said that he was still “on the fence” about zero deposit products.
He said that they provided a benefit by offering a lower upfront payment but could result in tenants being aggressively pursued for costs. “It’s often not the agent trying to pursue them, it’ll be debt recovery, and they will want their money with top interest, fees and charges on top,” he said.
Agents introducing the schemes should give tenants a true choice about signing up, provide accurate information about how they work and declare any commission, he said. But he acknowledged that not all agents play by the rules.
“What we don’t want is a PPI moment,” he added. “The concern would be that there would be people getting sued off the back of it. They could say, you’ve mis-sold this to the tenant: you’ve not provided them with sufficient data to make an informed decision, and you enforced this product on them to earn commission and hit your target.”
Requiring tenants to sign up to a zero-deposit scheme is likely a breach of the ban on tenant fees.
Trading Standards are looking into the concerns and James Munro, head of National Trading Standards Estate and Letting Agency Team, said that requiring tenants to take the zero deposit option was “bordering on discrimination” and a likely breach of the ban on tenancy fees. “Often it’s the agent who is the one in the middle really pushing these schemes, and a lot of the time it’s driven by referrals,” he said.
A number of industry bodies commented in the article.
Matthew Upton, director of policy at Citizens Advice, said that while the schemes could seem to be a good option “if you’re struggling to pull cash together”, renters could “end up paying hundreds of pounds in fees with no option to get their money back at the end of their tenancy”.
The housing charity Shelter, the campaign group Generation Rent and the renters’ union Acorn have warned that more people could be tempted to enrol due to cost of living pressures.
Two zero-deposit scheme companies were named in the article.
Flatfair said: “We insist that our deposit alternative is offered as a choice as per existing regulations and provide regular training to support this,” and added that it offered a transparent resolution process “to ensure all parties get a fair outcome”, and did not believe agencies were motivated by the “limited” commissions they could earn.
Sam Reynolds, chief executive at Zero Deposit, said that his team conducted regular mystery shops and that cases where agents pressured tenants into signing up were rare. The company is calling for a code of conduct that makes Financial Conduct Registration mandatory.
The Property Ombudsman made clear that zero-deposit complaints were not within its remit but stated that letting agents were obliged to accurately explain how alternative deposit products work and must declare commissions.
While acknowledging that the zero-deposit offering could help people to get a property that they otherwise couldn’t, Labour MP Clive Betts, who is chair of the Levelling Up, Housing and Communities Committee, said: “If there is mis-selling of a product the regulator ought to be clamping down on that straight away.”
You can read the full article here.
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