What is a zero deposit scheme?
A zero deposit or deposit replacement scheme lets a tenant pay a smaller, non-refundable fee instead of a cash deposit, with the provider covering the landlord for unpaid rent or damage up to an agreed limit. The tenant remains liable for any claim. When a property is sold, the cover may not pass to the buyer automatically.
Read more in our guide: Selling a portfolio with tenants
Key facts at a glance
| Item | Detail |
|---|---|
| What the tenant pays | A non-refundable fee, often around one week's rent, instead of a refundable deposit |
| What the landlord gets | Cover for unpaid rent and damage up to a limit, often equivalent to five or six weeks' rent |
| Tenant's liability | Still liable for losses; the provider can recover claims from the tenant |
| Deposit protection rules | Do not apply, because no deposit is held |
| Tenant Fees Act | The product must be optional, with a traditional deposit offered as an alternative |
| On sale | Cover is usually personal to the landlord; the buyer must arrange replacement cover or a deposit |
How Deposit Replacement Works
Instead of paying five weeks' rent as a deposit, which is then held in a protection scheme, the tenant pays the provider a fee and agrees to pay for any losses at the end of the tenancy. If the tenant does not pay, the provider pays the landlord up to the policy limit and pursues the tenant. Tenants like the lower upfront cost; landlords like that it can widen the pool of tenants, but they should check the provider's claims process and limits.
The Rules
- Under government guidance on the Tenant Fees Act 2019, deposit replacement products are allowed if the tenant is offered the choice of a traditional deposit.
- The fee is paid to the provider, not the landlord, and is not refundable.
- Because no deposit is held, the usual deposit protection requirements, and the penalties for breaking them, do not apply. Keep clear records showing the tenant chose the product.
- Regulation of these products is lighter than for deposit schemes, so read the terms carefully.
Zero Deposit Schemes When You Sell
In a tenanted sale, a cash deposit transfers to the buyer. A deposit replacement policy usually does not, because it is a contract between the provider and the original landlord or agent. Before exchange:
- list which tenancies use a deposit replacement product, the provider, the cover limit and the policy dates;
- ask the provider whether the policy can be assigned to the buyer;
- if not, tell the buyer, who may want to arrange new cover or price in the absence of a deposit;
- settle any outstanding claims for damage or arrears before completion.
Official Sources and Further Reading
General information for landlords in England, checked against official sources in October 2026. It is not tax, legal or financial advice: speak to a qualified accountant or solicitor about your own circumstances.
Frequently Asked Questions
A zero deposit or deposit replacement scheme lets a tenant pay a smaller, non-refundable fee instead of a cash deposit, with the provider covering the landlord for unpaid rent or damage up to an agreed limit. The tenant remains liable for any claim. When a property is sold, the cover may not pass to the buyer automatically.
Yes, provided the tenant is offered a traditional deposit as an alternative and chooses the product freely, in line with Tenant Fees Act guidance.
No. No deposit is held, so the deposit protection rules do not apply. The landlord relies on the provider's cover instead.
It usually stays with the original landlord or agent. Ask the provider whether it can be transferred, and tell the buyer if not.
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