This is an alternative to the traditional tenancy deposit where instead of paying up to 5 weeks’ rent upfront at the start of a lease, the tenant pays a non-refundable fee to a deposit replacement provider. At the end of the tenancy, instead of the landlord deducting sums from the deposit and returning the remainder to the tenant, the deposit replacement provider pays the landlord for any damage caused by the tenant then seeks to recover this sum from the tenant.
Deposit replacement schemes are designed to free landlords from the legal obligations that come with handling tenancy deposits, while easing tenants’ cash flow from the burden of making a large one-off payment.