Deposit replacement schemes: a guide for agents

A deposit replacement scheme lets a tenant pay a non-refundable fee — a one-off charge or a monthly premium — instead of a cash deposit. The landlord gets cover from the provider against unpaid rent or damage, but the tenant remains liable for anything they owe at the end of the tenancy and never gets the fee back. In England they are lawful only as an optional alternative: a landlord or agent cannot require a tenant to use one, and must be willing to take a traditional deposit instead.

Rules here are for England, checked against the Tenant Fees Act 2019 and GOV.UK guidance on 22 October 2026. This is general information, not legal or financial advice.

How does a deposit replacement scheme work?

Instead of paying up to five weeks' rent as a deposit, the tenant pays the provider a smaller fee. The provider then covers the landlord, up to an agreed limit, for losses at the end of the tenancy — unpaid rent, damage beyond fair wear and tear, cleaning. If the provider pays the landlord, it will usually seek to recover that money from the tenant.

Two points are often misunderstood by tenants:

• The fee is not a deposit. It is not protected in a deposit scheme and it is not returned, however well the property is left.
• It is not insurance for the tenant. The cover protects the landlord. The tenant can still be pursued for the full amount of any valid claim.

Are deposit replacement schemes legal?

Yes, if the tenant genuinely chooses one. The Tenant Fees Act 2019 bans landlords and agents from requiring a tenant to take out insurance or a third-party service — but a product offered as an alternative to something the landlord is allowed to ask for, such as a deposit, is not treated as "required". GOV.UK lists a deposit replacement product among the things a tenant may use if they choose to.

So the compliant approach is simple: offer it as an option, make clear the tenant can pay a normal deposit instead, and never make the property conditional on using the product. Requiring one is a prohibited payment, with fines of up to £5,000, rising to £30,000 for a repeat within five years.

Are deposit replacement products regulated?

It depends on the product. Some providers are authorised by the Financial Conduct Authority, typically because the cover is arranged as insurance; others describe their product as something other than insurance and fall outside FCA regulation. Propertymark has noted that not all of these products fall under FCA regulation.

Before offering one, check the provider on the FCA register, read how claims and disputes are handled, and make sure the tenant gets clear written information about what they are and are not paying for.

What are the pros and cons?

For tenants

• For: no five-week cash deposit to find, which can make moving possible when money is tight.
• Against: the fee is never returned, the tenant is still liable for any valid claim, and over several tenancies the fees can add up to more than a deposit would have cost.

For landlords

• For: faster lets and shorter voids when deposits are a barrier; cover up to the provider's limit, which some set above the five-week deposit cap.
• Against: claims can take longer and need stronger evidence than a deposit deduction, and the landlord depends on the provider's terms and solvency.

For agents

• For: no deposit to protect and no prescribed information to serve for that tenancy.
• Against: the agent must offer it fairly and explain it accurately — a mis-sold product is a complaint and a compliance risk waiting to happen.

Whichever route the tenant takes, the end-of-tenancy outcome depends on evidence: a detailed inventory, dated inspection reports and a clear record of the property's condition. Our guide to periodic inspection reports covers what that evidence should look like.

Did the Renters' Rights Act change deposit replacement?

Not directly — the Act contains no rules aimed specifically at these products. What it did change is the backdrop: since 1 May 2026, deposits on assured periodic tenancies must still be protected within 30 days, a court cannot make a Section 8 possession order while a deposit is unprotected or the prescribed information has not been served, and rent in advance is capped at one month. See our guide to the rent in advance rules.

Frequently asked questions

What is a deposit replacement scheme?

A product that lets a tenant pay a non-refundable fee instead of a cash deposit. The provider covers the landlord against unpaid rent or damage up to a limit, but the tenant remains liable for any valid claim and does not get the fee back.

Are deposit replacement schemes legal in England?

Yes, as long as the tenant chooses one freely. Under the Tenant Fees Act 2019, a landlord or agent cannot require a tenant to use a deposit replacement product; offering it as an optional alternative to a traditional deposit is allowed.

Do I get my money back with a deposit replacement scheme?

No. The fee is non-refundable, even if the property is returned in perfect condition. That is the main difference from a tenancy deposit, which is protected and returned less any agreed deductions.

Can a landlord insist on a deposit replacement scheme?

No. Requiring a tenant to use one is a prohibited payment under the Tenant Fees Act, with fines of up to £5,000, or £30,000 for a repeat breach within five years. The tenant must be able to pay a normal deposit instead.

Deposits, fees and rent all run through client money, and that is where errors become expensive. Solace's client accounting matches every payment to its tenancy and keeps the ledgers reconciled to the bank, all from your own client account and under your agency's name. To see it on your own portfolio, book a demo.