Deposit replacement scheme

A deposit replacement scheme is a financial product that lets a tenant pay a small non-refundable fee to a third-party provider instead of a traditional refundable tenancy deposit capped at five weeks' rent for most tenancies. In return, the provider guarantees the landlord compensation for unpaid rent or damage, typically up to six to eight weeks' rent. Under government guidance on the Tenant Fees Act 2019, a landlord may offer a deposit replacement scheme but cannot require a tenant to use one.

How a deposit replacement scheme works

The tenant pays the provider a fee, commonly around one week's rent as a one-off payment or a smaller monthly subscription, sometimes with an annual renewal charge. The fee is never returned, however well the tenant looks after the property. The provider issues the landlord a guarantee, and at the end of the tenancy the landlord claims against that guarantee rather than deducting from a held deposit. If the provider pays out, it recovers the money from the tenant, who remains fully liable throughout. The scheme changes the cash flow at move-in, not the tenant's responsibility.

How it differs from deposit protection

A deposit replacement scheme is not a tenancy deposit, so the protection regime under the Housing Act 2004 does not apply: there is no requirement to register the money in a government-approved scheme within 30 days, no prescribed information to serve, and no access to the free statutory adjudication service if there is a dispute. Claims are decided under the provider's own process instead. Some providers are FCA-authorised, which adds meaningful consumer protection; others operate under contract law alone. For how statutory protection works, including the custodial and insured options and the free adjudication service, see our guide to tenancy deposit schemes.

Who provides them

The main UK providers are Zero Deposit, flatfair and Reposit, alongside products offered through letting platforms and deposit protection businesses. The best-known product name has become a generic label, and our entry on the zero deposit scheme covers that variant in detail, including the claims process, costs and risks for both parties. Fee models, coverage ceilings and FCA status differ between providers, so the product name matters less than the terms behind it. Our comparison of Zero Deposit, flatfair and Reposit sets out the current terms side by side.

The legal position

Two rules shape how these schemes can be offered in England. First, under the Tenant Fees Act 2019 a deposit replacement product must be a genuine choice: making it a condition of the tenancy is likely to constitute a prohibited payment. Second, since 1 May 2026 the Renters' Rights Act 2025 limits rent in advance to one month, which removes the option of asking for several months upfront from tenants who cannot raise a cash deposit and has made replacement schemes a more prominent part of the letting conversation. From working with self-managing landlords across the UK, we see these products offered most often where tenants are moving before an outgoing deposit has been returned.

What landlords should check

The guarantee is only as good as the provider behind it, so check FCA authorisation on the FCA Register, the coverage ceiling, the evidence standard for claims and what happens if the provider fails. Landlords using August consistently tell us that claims succeed or fail on documentation: the provider will not pay a claim without the same evidence a deposit adjudicator would expect, which is why August's document management feature keeps inventories, check-in reports and photographs in one place.

Frequently asked questions

Is a deposit replacement scheme the same as a zero deposit scheme? 

In practice, yes. Zero deposit scheme is the common name, derived from the best-known provider, and deposit replacement scheme is the generic category term. Both describe a non-refundable fee paid to a provider in place of a refundable cash deposit.

Can a landlord insist on a deposit replacement scheme? 

No. Government guidance on the Tenant Fees Act 2019 is clear that a deposit replacement product must be offered as an option alongside a traditional deposit. Requiring it is likely to be a prohibited payment, enforceable by the local authority.

Is the fee refundable? 

No. The fee is the cost of the guarantee, not money held on the tenant's behalf. A tenant who returns the property in perfect condition still loses the fee, which is the central trade-off against a refundable cash deposit.