What happens if an agent has a tenancy deposit replacement product in a situation where the tenant leaves early and owing rent?
The question was raised by Ian Wilson, chief executive of The Property Franchise Group.
Yesterday EYE reported on a challenge – not upheld by the Advertising Standards Authority – by Zero Deposit to the claims made by rival flatfair.
Wilson put this question:
“Let us remind ourselves of a fairly common problem: tenant breaks early and leaves without consent and stops paying rent.
“You run around trying to find another tenant but there is a gap and a rental loss to the landlord. If you have a guarantor on the hook you might be OK but you will have to pursue a claim through the courts if he/she doesn’t pay.
“If you have a rent guarantee insurance in place you may or may not be OK – some policies won’t pay out after the tenant has physically vacated. Wouldn’t it be wonderful if you had (say) £800 of the former tenant’s cash you could claim against?
“But unfortunately the tenant bought one of the new fangled zero deposit replacement products and the cupboard is bare, as Ms Hubbard says.
“Will flatfair or Zero Deposit see your landlord right in these cases?”
Jon Notley, founder and CEO of Zero Deposit, responded:
“Every individual Zero Deposit guarantee is underwritten by Great Lakes Insurance SE, who are contractually bound to provide the advertised protections.
“Great Lakes Insurance SE is part of the Munich Re Group, one of the world’s largest re-insurers, which should give agents the highest possible confidence in our product.
“Furthermore, because the Zero Deposit guarantee is regulated by the FCA, it is also protected under the Financial Services compensation scheme.
“Combined, we believe these protections make our product the safest on the market.
“Of course any claim needs to be fair and upheld by TDS if disputed by the tenant, but that test applies to cash deposits as it does with the Zero Deposit guarantee.
“We have seen significant benefit delivered to tenants, landlords and agents from deposit replacement, and believe the market will grow and become the norm for renting in the months and years to come.
“However, we urge all agents to think carefully about who is providing the protection they have been offered, and whether that protection is contractually binding, before they start recommending deposit replacement to their customers.”
Franz Doerr, founder and CEO of flatfair, responded:
“With flatfair’s tech-backed platform, the tenant’s card is tokenised, the same way as when checking into a hotel.
“Just as you’d be charged for using the hotel minibar, damages or failure to make rent payments can be automatically charged to the tenant, once evidence is provided.
“This keeps the process entirely transparent, and flatfair uses this system to offer additional protection to landlords – up to 12 weeks’ worth of rent compared to only five with a traditional cash deposit.
“In addition to this, flatfair offers to purchase any debt that the tenant might accrue with the landlord for damages or rent arrears and then recover the costs ourselves.
“flatfair has used this process to achieve a 100% track record protecting landlords who have met our referencing requirements, meaning they needn’t worry about being left out of pocket even in a worst-case scenario.”
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Comments (12)
“The dilapidations where agreed by the adjudicator but Reposit didn’t pay the reimbursement sum immediately. They expected me to wait up to 8 weeks, whilst they chased the tenants, before a pay out.” And this is why I have a problem with these schemes, they are sold as insurance policies regardless as to whether they are or not. If someone bumps in to your car your own insurance company pay for the repairs and then pursues the other side for the cost, this is how insurance works not try and get the money from the other side and then payout. in my opinion these schemes will come back to haunt any agent or landlord that uses them and until there is definitive legislation controlling them they should be avoided.
TOZ4: You’ve just told us all we ever need to know about such schemes.
Ian Wilson: 100% right but a touch worrying that you consider ‘ tenant breaks early and leaves without consent and stops paying rent’ to be ‘a fairly common problem’. Perhaps you should consider giving your franchisees some extra training if this is what you’re seeing. Never been an issue for us!
So, I recently dealt with Reposit. The tenants vacated the newly refurbished accommodation with dilapidations and rent arrears. Fortunately, the guarantor coughed up the arrears and the rent guarantee policy coughed for 50% of the rent whilst vacant. The dilapidations where agreed by the adjudicator but Reposit didn’t pay the reinbursment sum immediately. They expected me to wait upto 8 weeks, whilst they chased the tenants, before a pay out. The guarantor coughed for the dilapidations too. But, I won’t be using a replacement scheme again unless they confirm, categorically, that pay out is immediate.
The first question is do you trust insurance companies? Anyone who has had to deal with loss adjusters might have deep concerns. The insurance companies are great at flogging their products but not so good at paying out. Many seem to have gone to the same training classes as politicians.
I am still not convinced by these schemes they seem to offer a conciquence free espae for tenant hell bent on not paying or leaving a property in a poor state and it seems that the poor landlord is going to suffer , also neither of the above ceo’s have answered the simple question YES or NO?
It makes no difference who you are backed by, how big they are and who regulates them, we all know that insurance companies by their very nature will try and wriggle out of any obligation they have by whatever technical point they can.
The only people to benefit from these schemes are the companies running them, if a landlord has the money in a deposit scheme at least he knows there is a fair chance of some recompence should something go wrong., and as i understand it you still have to go through resolution if there is a disput but theres no money to disput only a promise from the insurance company……!!
Zero deposit schemes are nonsense and agents and landlords should stay as far away as possible from them.
Bad idea for protection, does not make the tenant accountable, which is the whole reason for it in the first place. They are providing a commercial venture to fight after the horse has bolted, not prevent it from trying to get out of the stable and cause all the upset and misery for landlords and families that follows when it all goes pear shaped. “Prevention is better than the cure”.
If landlords want insurance protection for rent, damage etc that has already been available on the market for donkey years.
There’s more than a whiff of PPI-type potential scandal surrounding these types of product.
ive said this from the very outset a PPI scandle waiting to happen
Propertyeye- could you ask them both again and see if they’ll answer the actual question? A yes or no would be nice. I think they’d make good MPs with answers like that!
Doesn’t give me any confidence in either company when the CEOs can’t answer a simple question
is that a YES or NO to the question????
My question, is what happens to the insurance/policy/guarantee/scheme, should the purchaser of the product, cancel within 14 days of signing up and request their fee back? (which i assume they have the right to do so, under the cancellation regs 2013)
Obviously, if they have moved in, what protection if any, does the landlord have at that point from your product?
Morning Darrel,
The simple answer is yes, if the claim passes TDS then Zero Deposit will pay, just as with a cash deposit but with 6 weeks protection rather than the usual 5.
Clearly it’s important that agents understand the security that sits behind this guarantee, hence the detail above. As Iain phrases it, if the “cupboard is bare” then the policy of paying these claims is meaningless.
In terms of cooling off, we ask the tenant to evidence they have paid the cash deposit before cancelling. With almost 20,000 tenancies covered so far this has never been an issue. As an FCA regulated business we are required to ensure a fair outcome for the landlord.
Feel free to get in touch if you have any further questions.