A deposit replacement scheme lets you pay a non-refundable fee, or an extra monthly charge, instead of a tenancy deposit. You never get that money back, and you still have to pay for damage, cleaning or unpaid rent when you leave. So if you can afford the deposit, a scheme usually costs you more. In England, a landlord or letting agent cannot make you use one. It must be an optional alternative to paying a deposit.
How a deposit replacement scheme works
You may also see these called zero deposit schemes or deposit alternatives. Shelter describes them as a guarantee or insurance from a private company. Usually you pay either:
- a non-refundable fee at the start of the tenancy, or
- a monthly premium, an extra amount each time you pay rent
When you move out, the landlord can claim for things like cleaning, damage or rent arrears. If the company pays the landlord, it will reclaim that money from you, and it could take you to court if you do not pay. The scheme protects the landlord. It does not take your liability away.
Shelter also notes that some agents get commission from these companies. That is worth knowing if an agent pushes one hard.
Your rights in England
In England, the Tenant Fees Act 2019 limits what a landlord or agent can charge. The government’s guidance for tenants names a deposit replacement product as something you can choose to use. But your landlord is not allowed to make you pay for insurance, or start a contract for a service, as part of your tenancy.
In practice this means:
- You must be offered the option of paying a normal deposit. Citizens Advice says that if you are told you have to use a scheme, it might be an unfair tenancy fee.
- Shelter says an agent can only offer a scheme as an alternative. If you are forced to pay, it could be a banned fee.
- You can complain to the agent’s redress scheme if they told you that you must use one, or did not explain that you would still have to pay for anything a deposit normally covers.
A normal deposit in England is capped at 5 weeks’ rent if the yearly rent is below £50,000. See the five weeks’ rent deposit explained and which letting agent fees are allowed.
Deposit or replacement: worked example (fictional)
Amir rents a flat in England for £1,100 a month. His agent offers a choice: a normal deposit, or a fictional one-off replacement fee of £250.
- Weekly rent: £1,100 × 12 ÷ 52 = £253.85
- Five weeks’ deposit: £1,100 × 12 ÷ 52 × 5 = £1,269.23
| When Amir moves out | With a deposit | With the £250 fee |
|---|---|---|
| No deductions | Gets £1,269.23 back. Cost: £0 | Fee is gone. Cost: £250 |
| £300 cleaning claim (agreed) | Gets £969.23 back. Cost: £300 | Pays £300 to the company. Cost: £250 + £300 = £550 |
The fee costs Amir £250 more either way. What it buys him is cash flow: he keeps £1,269.23 − £250 = £1,019.23 in his pocket on moving day.
A monthly premium can add up faster. A fictional £20 a month over a two-year stay is £20 × 24 = £480, and none of it comes back.
These figures are invented to show the method. Real fees vary by company and property, so always ask for the exact cost in writing.
What you lose compared with a protected deposit
When you pay a deposit on an assured periodic tenancy in England, your landlord must protect it in a government-approved scheme within 30 days. At the end, they must return it within 10 days of you both agreeing how much you get back. If you disagree, the scheme offers a free dispute resolution service.
With a replacement scheme, disputes go through the company’s own process. Shelter says you may have to pay a fee if the company decides the landlord is right, or thinks you raised a dispute without good reason. Citizens Advice says you might have to pay for a third party to resolve disagreements. Read more on when you get your deposit back.
Is it worth it?
For most tenants who can raise the deposit, no. Citizens Advice says it is usually best to pay a deposit, because a scheme can cost you more. A scheme can make sense if you cannot raise the full deposit in time and you are confident you will leave the home in good condition.
Before you sign, Shelter suggests you:
- read the agreement carefully, and get advice if anything is unclear
- check the company is authorised on the Financial Conduct Authority’s Financial Services Register
- ask for its dispute resolution policy, and whether it uses an independent dispute service
If the policy is in your name, you can complain to the Financial Ombudsman Service. If you are struggling with the deposit itself, ask your council about help with housing costs first.
Use the tenancy deposit calculator to work out the deposit on your rent, then compare it with the fee you are quoted.
This guide covers England. Scotland and Northern Ireland have their own deposit protection schemes, and renting law differs across the UK nations.
Sources
- GOV.UK: Tenant Fees Act 2019, guidance for tenants, checked 10 October 2026
- GOV.UK: Tenancy deposit protection, checked 10 October 2026
- GOV.UK: Tenancy deposit protection, disputes and problems, checked 10 October 2026
- Shelter England: Zero deposit companies, checked 10 October 2026
- Citizens Advice: Check the costs of starting to rent from a private landlord, checked 10 October 2026
This guide is general information, not legal or financial advice. Report a possible error.