Zero deposit schemes: how they work, and the risks for a landlord

In England, a zero deposit product can be offered as an alternative to a cash tenancy deposit, but it cannot be forced on the tenant. The practical difference is that a cash deposit is a protected pot of the tenant’s money, while a zero deposit scheme is a private guarantee or insurance-style product funded by a usually non-refundable fee.

What is a zero deposit scheme, and how is it different from a cash deposit?

A zero deposit scheme is a private deposit replacement product offered instead of a cash tenancy deposit, usually for a non-refundable tenant fee, while a cash deposit is money held as security and must be protected in an authorised deposit scheme. DLUHC describes the model this way: “Some landlords and agents offer tenants the option of using a deposit replacement product as an alternative to them providing a traditional tenancy deposit.” The legal difference matters because the Tenant Fees Act defines a tenancy deposit as “money intended to be held (by a landlord or otherwise) as security for—”, and the Housing Act says: “Any tenancy deposit paid to a person in connection with an assured tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.” A zero deposit scheme for rent in the UK is therefore not just a smaller deposit: Shelter describes it as “a guarantee or insurance from a private company.” In England, cash deposits are capped at five weeks’ rent unless annual rent is £50,000 or more, when the cap is six weeks’ rent; the Act uses “£50,000 or more”, even though the How to Rent guide uses looser wording. Wales has no statutory cash-deposit cap, but Welsh deposits must still be protected; Scotland caps returnable deposits at two months’ rent; Northern Ireland makes unpaid deposit above one month’s rent irrecoverable. Abodient can hold whichever deposit arrangement is in use — a cash deposit and its protection scheme, or a zero deposit provider and policy — against the tenancy record, so the landlord always has it to hand.

What are the risks of a zero deposit scheme for a landlord?

No law sets a minimum cover amount, claims process, or FCA authorisation requirement for zero deposit providers, and some are not FCA-regulated. That regulatory gap is the main landlord risk: a zero deposit scheme for landlords is only as strong as its contract, cover level, evidence rules and provider solvency, not a protected cash fund already sitting in a deposit scheme. The compliance risk is separate: in England, a landlord cannot force the tenant to pay a replacement-product fee, because the Tenant Fees Act says: “A landlord must not require a relevant person to make a prohibited payment to a third party in connection with a tenancy of housing in England.” A genuine choice is different, because the Act also says the landlord does not require the payment if the person is given it “as an alternative to complying with another requirement”. A first breach can carry a penalty that “must not exceed £5,000.” Wales reaches a similar result because it is an offence to require a services contract as a condition of a standard occupation contract. The commercial pros and cons are also uneven: NRLA says clauses may require a cash deposit if the tenant cancels, and Reposit says tenants remain fully liable, but a landlord can still face losses above cover, an excess, or a disputed claim.

Last reviewed September 2026.

Sources

• DLUHC, Tenancy Deposit Reform: A Call for Evidence — “Some landlords and agents offer tenants the option of using a deposit replacement product as an alternative to them providing a traditional tenancy deposit.” Source
• Tenant Fees Act 2019, Schedule 1, paragraph 2 — “In this Act ‘tenancy deposit’ means money intended to be held (by a landlord or otherwise) as security for—” Source
• Housing Act 2004, section 213 — “Any tenancy deposit paid to a person in connection with an assured tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.” Source
• Shelter England, Zero deposit companies — “A zero deposit option is a guarantee or insurance from a private company.” Source
• Tenant Fees Act 2019, Schedule 1, paragraph 2 — “the amount of six weeks' rent, where the annual rent in respect of the tenancy immediately after its grant, renewal or continuance is £50,000 or more,” Source
• Welsh Government, Letting fees guidance for landlords and letting agents — “There is currently no limit placed on an amount of deposit, but should a limit be introduced, any amount above that limit will be regarded as a prohibited payment.” Source
• Renting Homes (Wales) Act 2016, section 45 — “If the contract-holder under an occupation contract pays a deposit (or another person pays a deposit on his or her behalf), the deposit must be dealt with in accordance with an authorised deposit scheme.” Source
• Rent (Scotland) Act 1984, section 90 — “For the avoidance of doubt, it is hereby declared that a deposit returnable at the termination of a tenancy or of a Part VII contract given as security for the tenant’s obligations for rent, for accounts for supplies of gas, electricity, telephone or other domestic supplies and for damage to the dwelling-house or contents is not a premium for the purposes of this Part of this Act provided that it does not exceed the amount of two months’ rent payable under the tenancy or under the Part VII contract, as the case may be.” Source
• Private Tenancies Act (Northern Ireland) 2022, section 4 — “A tenancy deposit in relation to a private tenancy that has not been paid is irrecoverable to the extent that it exceeds the amount of 1 month’s rent payable under the tenancy (and this is so despite anything in any agreement).” Source
• Reposit, What is no deposit renting? — “It’s important to note that some, but not all no deposit companies are authorised by the Financial Conduct Authority (FCA).” Source
• Tenant Fees Act 2019, section 1 — “A landlord must not require a relevant person to make a prohibited payment to a third party in connection with a tenancy of housing in England.” Source
• Tenant Fees Act 2019, section 1 — “For the purposes of this section, a landlord does not require a relevant person to make a payment, enter into a contract or make a loan if the landlord gives the person the option of doing any of those things as an alternative to complying with another requirement imposed by the landlord or a letting agent.” Source
• Tenant Fees Act 2019, section 8 — “must not exceed £5,000.” Source
• Renting Homes (Fees etc.) (Wales) Act 2019, section 2 — “It is an offence for a landlord to require a person to enter into a contract for services with the landlord, or any other person—” Source
• NRLA, Call of the Month: Tenant fees ban — “These clauses typically include requirements like paying a security deposit should the tenant cancel their zero deposit scheme insurance.” Source
• Reposit, Landlords — “Just like a normal deposit, tenants remain fully liable for all dilapidations and rent arrears at the end of tenancy.” Source
• DLUHC, How to rent — “With most products, you will still be responsible for the costs of any damages incurred at the end of the tenancy or required to pay an excess on any claim for damages or unpaid rent.” Source