Deliberating Deposit Replacement

Published on Monday, 11 May 2020. Posted in Case Studies

A case that The Property Ombudsman was asked to review came from a tenant about the information she was given about the deposit replacement product (DRP) before the tenancy commenced; her attempt to change from the DRP to a regular deposit scheme and the agent’s handling of the same; as well as concerns about the arbitration process.


The first element of this complaint concerned the information the tenant was provided about the DRP when she applied to rent the property. She said that she was not made aware of the terms and conditions of the DRP before she was asked to sign the No Deposit Option (NDO) agreement.

The use of DRPs within the lettings industry is relatively new; the updated TPO Code of Practice for Residential Letting Agents 2019 covers these products. Paragraph 13o of the Code obliges agents to ensure that they explain the potential advantages and disadvantages of a DRP in clear terms to both tenants and landlords before they proceed.

As the tenant applied to rent the property in 2018, this predated the inclusion of Paragraph 13o within the Code. However, information relating to the advantages and disadvantages of a DRP essentially constitutes disclosure of material information and therefore should have been fully explained.

The agent provided a copy of the information they said they sent to the tenant by email when she applied to rent the property, which included a Tenancy schedule as well as the terms and conditions of the NDO agreement. This was a 25-page document. The tenant provided the document she received; this was 13 pages and the terms and conditions of the NDO agreement were not included. There was some basic information to explain the process of the DRP.

In this case, the Ombudsman criticised the agent’s provision of service. Firstly, the agent should have had a copy of the full terms and conditions of the NDO available for the tenant on the day she applied to rent the property. Secondly, the NDO Agreement should have made clear that these payments were non-refundable; the tenant had not understood the product and thought that the payments would be returned at the end of the tenancy if there were no rent arrears or damage. The exact nature of the DRP was not clear from the information initially provided.

The second element of this complaint concerned the tenant’s attempt to cancel the

NDO agreement and pay a traditional security deposit instead. She had decided, part way through the tenancy and upon realising that the monthly sums were a fee rather than beingrefundable at the end of the tenancy, to switch to paying a traditional deposit. The tenant was upset that she was asked to pay an administration fee to do so.

The Property advertisement stated that a Tenancy Agreement Substitution charge of £150 inclusive of VAT would be payable if the tenant wanted to cancel the NDO agreement and pay a standard security deposit. This was also detailed in the NDO agreement and therefore the Ombudsman considered that the tenant was made sufficiently aware of the charge she would need to pay should she wish to change from the NDO during the tenancy. TPO also sought advice from MHCLG and ARLA about this fee; both considered that if a tenant opted for a DRP the Tenant fee Act was no longer applicable, in that the DRP was outside the Act. It is therefore permissible for an insurance company to charge a fee to terminate an insurance product early.

Finally, the tenant also raised concerns about the end of tenancy process. She was upset about having to pay a fee to challenge the deductions. Having rented before, she had thought that she could approach a tenancy deposit scheme with no charge. In this case the NDO clearly stated that there would be a fee of £150 (inclusive of VAT) to access arbitration and hence this part of the complaint was not upheld. TPO’s view is that any fee must be stated; certainly, tenants may not expect to pay to challenge deductions and such a fee is material information that should be clearly disclosed.


The complaint was supported to the extent that the agent had not ensured that the tenant was provided with all maternal information about the deposit replacement product when she applied to rent the property. An award of compensation of £150 for the resulting aggravation was made in full and final settlement of the dispute.